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ASX to rise after Wall St continues to stay positive

Published 12/01/2023, 10:02 am
Updated 12/01/2023, 10:30 am
© Reuters.  ASX to rise after Wall St continues to stay positive

© Reuters. ASX to rise after Wall St continues to stay positive

The ASX is set to rise today with ASX 200 Futures up 57 points, or 0.79%, as of 8:30am AEST.

Any rise today will be a carry-over from the positive sentiment on Wall St overnight which saw traders continue to buy bonds and stocks on the belief that inflation will soften further.

DoubleLine Capital founder Jeffrey Gundlach urged investors to put more faith in the bond market than the Federal Reserve. “My 40-plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says,” Gundlach said at a webcast.

The current minor rally may be put to the test today US time, as the highly awaited US inflation reading will be released.

The Bureau of Labor Statistics’ December CPI reading is expected to show a 6.5% rise from a year earlier, slowing from a 7.1% year-over-year rise seen in the previous month.

The question the Fed must ask itself is whether inflation is slowing fast enough. The December CPI figure has great influence over the Fed’s rate decisions – the next one due on February 1.

The central bank is expected to pause rate hikes at the meeting but a decision on rates could go either way.

“After hiking 50 basis points at the December meeting, we expect the Fed moves to a 25bp hiking pace in early February, and ultimately pause around 5%,” wrote Pimco’s economists Tiffany Wilding and Allison Boxer, in a Tuesday note.

Contrary to this, officials feel the central bank must raise rates to above 5% to bring inflation back to a 2% target.

Fed funds futures traders see a 78% likelihood of a 25 basis point hike at its February meeting. There is a further 68% chance of another in March. These hikes would bring the terminal rate to merely 4.75-5% by mid-year.

“Inflation swaps currently see inflation falling below 2.5% by the summer of 2023, which seems hopeful,” Mott Capital Management founder Michael J Kramer said in a Monday note.

“This week’s CPI reading will be essential in maintaining that view and could prove disastrous if CPI comes in hotter than expected, veering market-based inflation expectations off course.”

According to Spouting Rock Asset Management chief strategist Rhys Williams, “If you get a number in the low four [per cent], the stock-market rally will continue. The market is very hyper-focused on data points.”

Williams does not believe the 2% target will be hit by the northern hemisphere summer.

“I think at some point the markets will realise, ‘oh we can’t get to 2%,” and then the markets probably do sell off on that. I think maybe in short term [the stocks go] up and then in the second quarter, they go back down as people realise that 2% is not realistic,” Williams told MarketWatch.

Here’s what we saw (source Commsec):

  • The Euro rose from lows near US$1.0724 to highs near US$1.0774 and was near US$1.0755 at the US close. But the Aussie dollar eased from highs near US69.24 cents to lows near US68.72 cents and was near US69.10 cents at the US close. And the Japanese yen dipped from near 132.14 yen per US dollar to around JPY132.84 and was near JPY132.45 at the US close.
  • Global oil prices climbed 3% on Wednesday. Oil shrugged off a large US crude stockpile build with traders focusing on China as it speeds up purchases of US crude before the Lunar New Year.
  • US crude inventories rose by 18.96 million barrels last week to 439.6 million barrels, the largest weekly build since February 2021. Analysts had expected a 2.24 million barrel drop. The Brent crude oil price rose US$2.57 or 3.2% to US$82.67 a barrel.
  • The US Nymex crude oil price added US$2.29 or 3% to US$77.41 a barrel.
  • Base metal prices advanced on Wednesday, fuelled by optimism that China's economic reopening will spur demand in the world's top consumer.
  • Copper rose 2.6% to its highest level since June 2022. And aluminium gained 1.6%.
  • The gold futures price rose US$2.40 or 0.1% to US$1,878.90 an ounce. Spot gold was trading near US$1,876 an ounce at the US close.
  • Iron ore futures lifted US$1.36 a tonne or 1.1% to a 6-month high of US$121.02 a tonne as China's economic outlook improved.
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