The ASX is likely to follow Wall St higher today. The US snapped a three-day losing streak to finish last week in the green, with rebounding tech stocks, including Netflix (NASDAQ:NFLX), leading the way. Netflix reported higher-than-expected subscriber numbers and its share price added 8.46% to $342.50.
Google (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA) and Nvidia were also higher up 5.72% to $99.28, 4.91% to $133.42 and 6.4% to $178.39.
For the week, the S&P500 lost 0.66% to 3,972, the Dow Jones lost 2.7% to 33,375 and the tech-heavy Nasdaq added 0.67% to 11,619.
Of what to expect in the US, IG Market’s Tony Sycamore said, “The Fed has entered the blackout period ahead of its upcoming Feb FOMC meeting. While the balance of Fed speakers last week rang hawkish, ie, take the Fed Funds rate above 5% and stay on hold for a long time, the rates market is not buying into it and continues to price a lower terminal rate of 4.91% (vs 5.125% via the Feds dots) and 210bp of cuts over the next 18 months.”
Over in Europe, sharemarkets rose on Friday. Travel & leisure rose 1.3% and Retail rose 1.1% on hopes for a re-opening of the Chinese economy from COVID-19 lockdowns. Shares in Ericsson (BS:ERICAs) fell 4.7% after it reported lower-than-expected fourth-quarter core earnings. The continent-wide FTSEurofirst 300 index gained 0.4% to be up 0.1% on the week. The UK FTSE 100 index rose by 0.3% on Friday.
The ASX 200 finished the week 1.7% higher and should continue the upward trend today. ASX 200 futures are trading 34 points higher, up 0.45% as of 8:20 am AEDT.
Here’s what we saw (source Commsec):
- The Euro held between US$1.0800 and US$$1.0856 and was near session highs at the US close.
- The Aussie dollar lifted from near US68.10 cents to US69.73 cents and was near session highs at the US close. The Japanese yen eased from 128.75 yen per US dollar to JPY130.60 and was near JPY129.55 at the US close.
- Global oil prices rose as much as 1.7% on Friday on hopes that a re-opening of the Chinese economy will lift oil demand. A price cap on Russian oil is also supporting prices.
- The Brent crude oil price rose by US$1.47 or 1.7% to US$87.63 a barrel.
- The US Nymex crude oil price added US98 cents or 1.2% to US$81.31 a barrel. Over the week Brent rose US$2.35 or 2.8%. Nymex rose US$1.45 or 1.8%.
- Base metal price futures prices were firmer on Friday. The US aluminium futures price rose 0.7%. And the US copper futures price lifted 0.6%. Over the week aluminium rose 0.3% and copper rose 1.1%.
- The gold futures price rose US$4.30 or 0.2% to US$1,928.20 an ounce. Spot gold was trading near US$1,927 an ounce at the US close.
- Over the week gold rose by US$6.50 an ounce or 0.3%.
- Iron ore futures rose by US37 cents a tonne or 0.3% to US$122.16 a tonne. Over the week iron ore fell by US17c or 0.1%.
Soundbites from central banks
Movements from central banks will continue to move the markets in 2023, with the Reserve Bank of Australia set to meet for the first time this year next week.
Looking abroad, European Central Bank president Christine Lagarde said: “Economic news has become much more positive … We may only see a small contraction in the Eurozone … Will stay course with rate hikes … Inflation expectations are not de-anchoring.”
Philadelphia Fed president Patrick Harker: "I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed … Hikes of 25 basis points will be appropriate going forward.”
Fed governor Christopher Waller: “And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favour a 25-basis point increase at the FOMC’s next meeting at the end of this month.”
Is a mortgage cliff coming?
Citi believes talk of a mortgage cliff is overstated, despite those on low fixed rates coming out of their locked periods.
“Low to middle-income earners facing this mortgage cliff represent only about 4% of all households," Citi analysts Adrian Lemme and James Wang wrote.
"Moreover, even these households are better placed to manage this transition given their higher rates of saving than pre-COVID."
"Overall, we remain optimistic on the retail outlook relative to market expectations."
They have also estimated interest rate increases and normalisation of travel spending will impact domestic retail spending capacity by about $65 billion in FY23 and a further $18 billion in FY24.
"Interestingly, we find the impact of travel normalisation to be more significant than the interest impact when accounting for the benefit of higher rates on deposits, which are up $346 billion since the beginning of the pandemic."
Household deposits are well above the pre-COVID run rate growing at $124 billion on-year higher than the pre-COVID $50-60 billion with savings becoming more evenly distributed.
"Savings growth can revert back to more normal levels as it has previously) to offset the headwinds," the analysts say.
"Employee compensation has increased by $13 billion per annum from FY19 to FY22 and the outlook remains solid.
"Moreover, we find the incidence of the higher travel and interest rate costs mostly fall on the higher income households whose savings and incomes have been growing the fastest."