ASX to rise, S&P 500 edges closer to record high
Australian shares are poised to rise in line with Wall Street’s extended rally as investors continue to position for a pivot to rate cuts by the Federal Reserve next year.
Federal Reserve Bank of Richmond president Thomas Barkin suggested the US central bank would cut interest rates if recent progress on inflation continues, but said he’s still looking for conviction that inflation is heading back to the Fed’s 2 per cent target.
“If you’re going to assume that inflation comes down nicely, of course we would respond appropriately,” Barkin said in a broadcast interview with Yahoo Finance. Bloomberg reported Barkin’s comments.
Atlanta Fed chief Raphael Bostic, while saying he sees no urgency to cut rates, said he expects two rate cuts in the second half of 2024.
The S&P 500 neared a record high, while both the Dow Jones and Nasdaq 100 each continued to reset their record highs.
Traders have priced in a 67.5 per cent chance that the Fed will cut a quarter point in March, according to the CME Group’s FedWatch tool.
Oil edged higher as tensions remain high in the Middle East and shipping disrupted in the Red Sea. About 12 per cent of global trade passes through the Red Sea, according to the International Chamber of Shipping.
“We call on member states to use their diplomatic influence and bring pressure to bear on the Houthis to de-escalate the increasingly volatile situation in the region,” the ICS said in a statement overnight.
Market highlights
ASX futures up 35 points or 0.5% to 7538 near 8am AEDT
- AUD +0.8% to 67.62 US cents
- Bitcoin -0.04% to $US42,327 at 8.29am AEDT
- On Wall St at 4pm: Dow +0.7% S&P +0.6% Nasdaq +0.7%
- In New York: BHP +1.7% Rio +1.3% Atlassian +2%
- Tesla +2% Apple +0.5% Amazon -0.2% Block +4.6%
- Stoxx 50 +0.3% FTSE +0.3% DAX +0.6% CAC +0.1%
- Spot gold +0.6% to $US2038.31/oz at 1.48pm in New York
- Brent crude +1.5% to $US79.12 a barrel
- Iron ore -0.1% to $US132.40 a tonne
- 10-year yield: US 3.93% Australia 4.11% Germany 2.01%
- US prices as of 4.25pm in New York
Today’s agenda
Local: Westpac leading index November at 10.30am
The prime ministers of New Zealand and Australia will hold talks Wednesday on regional security amid ongoing concerns about China’s ambitions in the Pacific.
Overseas data: NZ December ANZ consumer confidence at 8am; UK November CPI at 6pm; Eurozone consumer confidence December; US November existing home sales, December consumer confidence index
What’s driving markets
Global fund mangers extend their equity bets Fund managers are the most overweight equities relative to cash since January 2022, according to Bank of America’s latest survey of their holdings.
Expectations for a soft landing for the US economy continue to heighten and the latest Atlanta Fed model shows that American consumer confidence appears intact.
In a note, Doug Ramsay at The Leuthold Group said stock investors increasingly believe the Fed might actually pull off a soft landing. Ramsay is less convinced.
“While breadth and leadership are not what we’d expect from a bull market that’s barely a year old, they obviously look much better than only two months ago. The impact of recent market gains on household wealth and consumer confidence could certainly be enough to forestall the recession’s arrival—but we wonder if that is already mostly discounted in current valuations.”
Morgan Stanley chief economist Ellen Zentner said: “Policy rules applied to our forecasts suggest the Fed will need to cut rates more than what it has currently penciled in (Morgan Stanley 4 cuts vs Fed 3 cuts in 2024), while the market-implied path is too low.”
Morgan Stanley forecasts the first quarter point cut in June, a total of 100 basis points in 2024 and then an additional 200 basis points cuts in 2025.
Apollo Global chief economist Torsten Slok, however, sees a new hurdle: “The Fed pivot combined with a one standard deviation decline in VIX, a 60 bps tightening in IG spreads since March, and a $US20 decrease in oil prices since September will boost GDP growth by 1.5 per cent over the coming quarters, see chart below.
“The CBO estimates that potential growth in the US is 2 per cent, so a 1.5 per cent boost to GDP is significant. Stronger GDP growth will boost demand for housing, labour, airlines, hotels, restaurants, and goods, which ultimately will put renewed upward pressure on inflation.
“The conclusion for markets is that the Fed pivot last week complicates the Fed’s goal of getting inflation back to 2 per cent, and as we enter 2024, the pendulum will soon swing back from a dovish Fed to a more hawkish Fed.”
United States
Alphabet will pay $US700 million and alter its Google Play policies to settle claims that the app store unlawfully dominates the Android mobile applications market, resolving antitrust complaints brought by attorneys general of about three dozen states and consumers.
Other top stories
Freight, oil climb as Red Sea attacks shut down shipping Intensifying attacks from Houthi rebels in the Red Sea hastened a US-led response to a dangerous escalation of the Gaza war that threatens global trade.
‘Staggering’ tech returns to lift super balances 8.8pc The superannuation savings of many Australians are forecast to grow by 8.8 per cent for 2023, an unexpectedly good result driven by strong markets that will mostly erase the losses of last year.
RBA warns it may raise rates again, but markets predict cuts Markets doubt the central bank will deliver any more rate rises, despite warning it may need to deliver another increase if inflation remains high.
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