Market Overview

ASX futures were pointing 0.1% lower as of 8:00am on Tuesday.

US stocks pared some of their early gains Monday, with investors still weighing bets about whether the Federal Reserve might dial back its aggressive pace of increases in interest rates.

The S&P 500 fell 0.1%, to close at 3892.09, after rising as much as 1.4% in morning trading. The benchmark index jumped 2.3% Friday after the monthly jobs report pointed to a slowdown in wage growth.

The Dow Jones Industrial Average dropped 0.3% and the tech-focused Nasdaq Composite rose 0.6%.

Investors are prepared for comments on Tuesday from Fed Chair Jerome Powell, who analysts expect could say that more time is needed to prove that inflation is under control.

In commodity markets, Brent crude oil added 1.44% to $US79.70 a barrel while gold gained 0.44% to US$1,873.96.

In local bond markets, the yield on Australian 2 Year government bonds fell to 3.28% while the 10 Year declined to 3.72%. Overseas, the yield on 2 Year US Treasury notes slid to 4.19% and the yield on 10 Year US Treasury notes dipped to 3.51%.

The Australian dollar rose to 69.28 US cents from the previous close of 68.74. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, decreased to 95.92.

Asia

Chinese stocks continued to rally as border reopening, cheap valuations, and a weaker US dollar attracted investors. Consumption and insurance companies led the gainers. Index heavyweight Kweichow Moutai rose 2.1% and Ping An Insurance increased by 2.4%. However, property stocks ran out of steam despite Beijing's supportive policies as homebuyers' confidence is expected to take more time to recover. China Vanke fell 2.3% and Gemdale Corporation declined 1.0%. The Shanghai Composite Index closed 0.6% higher at 3176.08, the Shenzhen Composite Index rose 0.7% and the ChiNext Price Index added 0.8%.

Hong Kong stocks ended higher, resuming their strong start to 2023 after a slight downturn on Friday. The benchmark Hang Seng Index rose 1.9% to settle at 21388.34, notching another multi-month high. Consumer goods and services companies led the gainers, as both sectors continued to rally amid China reopening optimism. E-commerce platform operator Alibaba jumped 8.7%, smartphone maker Xiaomi surged 7.65%, while restaurant chain Haidilao advanced 5.6%. Exporters also gained, after strong US jobs data and milder Europe inflation readings boosted hopes for better-than-expected 2023 macroeconomic conditions in developed countries, which are key markets for many Hong Kong-listed exporters. Techtronic Industries rose 5.8% and Shenzhou International added 5.3%.

Japanese markets were closed on Monday to celebrate Coming of Age Day.

Europe

European stocks rose in closing trade on Monday as the relaxation of China's travel restrictions boosted market sentiment. The pan-European Stoxx Europe 600 advanced 1%, the British FTSE 100 added 0.3%, the German DAX jumped 1.4%, and the French CAC 40 gained 0.9%.

China resumed quarantine-free travel over the weekend as it lifted its strict Covid-19 curbs that kept borders effectively closed for nearly three years. That "helped give markets a further lift as the New Year feel-good effect continues to drive sentiment, pushing stocks higher and the US dollar lower," CMC Markets analyst Michael Hewson wrote.

Retail and consumer goods companies in the UK are expected to report robust performance updates this week, following strong showings from B&M and Next, Shore Capital analysts Eleonora Dani and Clive Black said in a note.

"Overall, stronger consumer demand than feared will support top lines of consumer companies but, in our view, the shares of multichannel businesses will perform better compared to online pure peers," they said. A mix of cold weather and aggressive discounting lifted sales, but highlights that the sector's profitability is likely to remain constrained despite robust demand, the analysts noted.

North America

US stocks pared some of their early gains Monday, with investors still weighing bets about whether the Federal Reserve might dial back its aggressive pace of increases in interest rates.

The S&P 500 fell 2.99 points, or 0.1%, to close at 3892.09, after rising as much as 1.4% in morning trading. The benchmark index jumped 2.3% Friday after the monthly jobs report pointed to a slowdown in wage growth.

The Dow Jones Industrial Average dropped 112.96 points, or 0.3%, to 33517.65. The tech-focused Nasdaq Composite rose 66.36 points, or 0.6%, to 10635.65.

Stock markets around the world have started 2023 on a positive footing, driven by signs that inflation is abating in the US and Europe. Investors hope that this slowdown will encourage central banks to raise interest rates in smaller increments, which could do less damage to the economy than rapid increases in borrowing costs.

But money managers say the Fed and other central banks will want to see a sustained decline in inflation before they consider pausing efforts to tighten monetary policy. Prices for goods and services beyond volatile food and energy markets continue to grow too fast for comfort at the Fed and European Central Bank, investors say.

"In 2023, we'll need to see almost all numbers pointing in the right direction to maintain this rally," said Edward Park, chief investment officer at London-based Brooks Macdonald.

Another risk is that an expected slowdown in the economy turns into a nasty recession, Mr. Park added. "Equity markets are aiming for a narrow landing strip where inflation recedes and growth remains OK - but poor enough to stimulate the Fed into changing its course," he said.

Investors are awaiting data on consumer prices in the US, due Thursday. The figures will set the tone for the Fed's monetary-policy meeting that starts Jan. 31.

The Fed will be particularly focused on wage growth and needs to see more evidence that it is slowing before considering a pause in rate hikes, UBS Global Wealth Management chief investment officer Mark Haefele wrote in a note to clients Monday.

Also this week, earnings season picks up speed with major banks including JPMorgan Chase and Bank of America due to report Friday.

Among individual stocks, Bed Bath & Beyond surged 31 cents, or 24%, to close at $1.62 in another bout of wild trading for the company's shares. The firm is preparing to file for bankruptcy within weeks, The Wall Street Journal has reported. Uber Technologies shares rose $1, or 3.8%, to $27.40 after analysts at Piper Sandler raised their target price for the ride-hailing stock.

Tesla was the S&P 500's best performer, rising $6.71, or 5.9%, to close at $119.77 and extend its rebound from a two-year low it hit last week. Regeneron Pharmaceuticals was among the biggest laggards, tumbling $56.66, or 7.7%, to $680.49 after the drug-maker reported lower sales of its Eylea treatment than Wall Street was expecting.

Lululemon Athletica fell $30.60, or 9.3%, to $298.66 per share after the athletic-apparel maker said it expected profit margins to fall in its fourth quarter.