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The morning catch up: ASX to open lower ahead of US rate decision

Published 18/09/2024, 10:00 am
© Reuters The morning catch up: ASX to open lower ahead of US rate decision
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The ASX is set to open lower this morning with the ASX SPI 200 Futures trading down 39 points (-0.48%) to 8,111.

This follows little change on Wall Street overnight, with US markets ending more or less flat after giving up earlier gains that had vaulted the S&P 500 and Dow Jones indexes to record highs ahead of the US Federal Reserve rate decision on Wednesday.

The Dow Jones index fell by 16 points or 0.04%, the S&P 500 index ended flat and the Nasdaq index added 36 points or 0.2%. Energy stocks were up 1.4%, buoyed by a climb in crude oil prices. Healthcare was the worst-performing sector with a drop of 1%.

  • Microsoft (NASDAQ:MSFT) shares rose 0.9% after the AI frontrunner's board approved a new US$60 billion share buyback program and hiked its quarterly dividend by 10%.
  • Intel (NASDAQ:INTC) gained 2.7% after signing Amazon.com (NASDAQ:AMZN)'s cloud-services unit as a customer to make custom AI chips.
  • Amazon.com advanced 1.1%.
  • Accenture (NYSE:ACN) dropped 4.8% on reports the professional services company will delay the bulk of its staff promotions by six months amid a prolonged slump.

Traders were split on the size of this week’s expected interest rate cut after a surprise increase in US retail sales in August.

ActivTrades senior analyst Ricardo Evangelista considered what impact the Fed’s decision could have on both gold and oil prices:

“Gold prices are hovering near their all-time highs, driven by expectations that the Federal Reserve may adopt a more dovish stance at tomorrow’s rate decision meeting.

“For a while, the debate has centred on the size of the September rate cut. Now, with the decision imminent, a 50-basis point cut is considered more likely than the initially expected 25-basis point reduction.

“This anticipation has weakened the dollar and eased treasury yields, supporting the rise of the non-yielding precious metal. Beyond the rate cut, traders will closely analyse Jerome Powell’s remarks, which are expected to provide guidance for the remainder of the year.

“If, as some anticipate, the Fed Chair signals openness to further rate cuts—potentially up to a full percentage point—it could lead to further dollar depreciation, offering continued support for gold prices.”

Evangelista added, “Over the past few sessions, crude prices have rebounded after recent weeks' losses, which pushed the price per barrel to its lowest level since December 2021.

“Current trends suggest the beginning of a recovery for crude prices. Expectations are growing that the Federal Reserve will initiate an aggressive rate-cutting cycle, with some predicting cuts of up to a full percentage point by year-end.

“If Jerome Powell confirms this dovish approach in his address on Wednesday, the prospect of lower borrowing costs could brighten the economic outlook and further boost oil prices.”

Countering that view are lowered growth forecasts for global oil demand from OPEC and the International Energy Agency (IEA), citing weaker Chinese consumption.

This concern saw Brent Crude drop below US$70 a barrel this month — its lowest level in almost three years. The price is now around US$73 dollars, but some analysts expect the price to reach as low as $US65 dollars per barrel in coming weeks.

European markets

European sharemarkets closed higher on Tuesday ahead of the US central bank's interest rate decision.

  • The continent-wide FTSEurofirst 300 index rose 0.4%.
  • In London, the UK FTSE 100 index also gained 0.4%.
  • Spain's benchmark index jumped 1.1%, hitting its highest level in over nine years.

Retail stocks led gains amongst major European sectors with a 2.8% rise. The ZEW economic research institute said German investor morale darkened more than expected in September, with the sentiment index dropping to 3.6 from 19.2 in August, against expectations of 17.0.

Currencies

Currencies were weaker against the US dollar in European and US trade.

  • The Euro fell from US$1.1145 to US$1.1111 and was near US$1.1115 at the US close.
  • The Aussie dollar dipped from US67.68 cents to US67.45 cents and was near US67.55 cents at the US close.
  • The Japanese yen fell from 140.36 yen per US dollar to JPY142.35 and was near JPY142.40 at the US close.

Commodities

Global oil prices rose by over 1% on Tuesday as supply disruptions mounted and traders bet that demand will grow if the US Federal Reserve lowers borrowing costs this week, as is widely expected.

  • The Brent crude price rose by US95 cents or 1.3% to US$73.70 a barrel.
  • The US Nymex crude price gained US$1.10 or 1.6% to US$71.19 a barrel.

Base metal prices were mixed on Tuesday.

  • Copper futures were broadly flat.
  • Aluminium futures fell 0.3%.

The gold futures price fell US$16.50 or 0.6% to US$2,592.40 an ounce on Tuesday as the US dollar and US Treasury yields firmed. Spot gold was trading near US$2,569 an ounce at the US close.

Iron ore futures edged up US4 cents or less than 0.1% to US$91.98 a tonne on Tuesday with Chinese financial markets closed for the mid-Autumn festival holiday.

What’s happening in small caps?

  • International Graphite Ltd (ASX:IG6) has received further “spectacular” graphite assays from four diamond holes at the Mason Bay deposit at the Springdale Graphite Project on the south coast of Western Australia.
  • Torque Metals Ltd (ASX:TOR) has reported a mineral resource estimate for its Paris Gold Project of 250,000 ounces at 3.1g/t gold, including Paris Deposit with 152,000 ounces at 4.3g/t gold.
  • Sovereign Metals Ltd (ASX:SVM, OTC:SVMLF, AIM:SVML) has installed and commissioned an industrial-scale spiral concentrator plant at its laboratory in Malawi that will facilitate ongoing testwork and offtake discussions with lithium-ion battery makers and other graphite markets.
  • Evion Group NL (ASX:EVG, OTC:EVIGF) hosted the Madagascan Government team at the recent Africa Down Under conference and held several very productive meetings that concluded with agreement on a pathway forward for the development of the Maniry Graphite mine in Southern Madagascar.
  • Brookside Energy Ltd (ASX:BRK, OTC:RDFEF) has completed the final stage of operations for the Flames-Maroons Development Plan wells with isolation plugs drilled out and well cleanup underway ahead of flowback.
  • Read more on Proactive Investors AU

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