ASX futures were 22 points or 0.31% higher at 6996 at 7.00am AEDT, suggesting a rise at the open.
U.S. stocks edged higher on Monday, extending their recent winning streak, while commodity prices declined due to concerns that growth was slowing in China.
The S&P 500 rose 16.99 points, or 0.4%, to 4,297.14 after notching a fourth straight weekly gain on Friday. The Dow Jones Industrial Average rose 151.39 points, or 0.4%, to 33912.44, and the Nasdaq Composite gained 80.87 points, or 0.6%, to 13128.05.
Nine of the S&P 500’s 11 sectors gained ground, led by consumer staples and utilities. Energy and materials shares fell with commodity prices.
Stocks have been on a general upswing since mid-June. Investors are hoping the Federal Reserve slows the pace of rate increases starting in September as some signs suggest that inflation in the U.S. peaked earlier this summer. And that has, in its own turn, pulled yields on government bonds down from their year highs, and given a jolt to stock prices.
Some investors say that shares have fallen enough this year that they look like good buying opportunities again. The S&P 500 has gained 17% since June 16 but is still down 9.8% in 2022.
“You’ve got a knot in your stomach when 500 stocks are down, but when you’re scared that’s when it’s the right time to be buying,” said Peter Boockvar, chief investment officer of Bleakley Financial Group, adding that he is buying quality value stocks.
And in the commodities markets, iron ore surged 5.9 per cent to $US104.55, Brent crude oil fell 4.3 per cent to $US 93.94 a barrel, and gold slipped 1.3% to US$1,779.55. China accounts for more than 15% of the world’s oil and more than half of global refined copper consumption, meaning slowing Chinese growth will continue to weigh on commodity markets in the months ahead.
Aussie 2 Year bonds eased 4 ppt to 2.81% and 10 Year bonds were 3ppt lower at 3.36%. Overseas, the yield on the 2 Year US Treasury notes retreated to 3.18% and the yield on the 10 Year US Treasury notes dropped to 2.79%.
The Australian dollar fell to 70.19 US cents from 71.23. The Wall Street Journal Dollar Index, which measures the US currency against 16 others, slipped to 97.95.
Asia
Stocks in China finished sharply higher after the PBOC unexpectedly slashed two of its key rates in a bid to lend additional support to the cooling economy. Reports on Chinese economic activity in July had also disappointed the consensus forecast, as strains in the property market and outbreaks in Covid-19 cases had staggered the country, Jing Liu, HSBC’s chief economist of Greater China, added. But the good news is that Beijing looks likely to maintain a policy loosening path "in light of the likely tougher-than-expected growth path," the analyst said in a note. Auto stocks were mixed, with BYD Co. up 1.1% and SAIC Motor down 0.3%
The Hang Seng Index in Hong Kong fell 0.7% to 20040.86, as new data showed that Chinese economic activity decelerated in July across the board. Some of the biggest losers included companies that had announced they would voluntarily delist from the NYSE, such as PetroChina, Sinopec and China Life Insurance, which fell between 2.4 percent and 3.4 percent. Chip maker SMIC slid 6.1% after 2Q profit decrease. Hot-pot chain operator Haidilao led gains with an 8.0% surge after the company reported operations have recovered significantly since June.
Europe
The pan-European Stoxx Europe 600 is higher by 1.48 points or 0.34% today to 442.35, Germany’s DAX is up 20.76 points or 0.15% today to 13816.61, and France’s CAC 40 is up 16.09 points or 0.25% today to 6569.95.
In London, the FTSE 100 rose 0.3 percent, to 7510 points, as pharmaceutical stocks surged after AstraZeneca said that trial results had shown strong benefits for its cancer drug Enhertu. AstraZeneca rose 2.2% after announcing that Enhertu had significantly stalled the progression of metastatic breast cancer in a Phase 3 trial.
“The news has its strongest read across to the wider sector by dint of offering a reminder of some of the strides which major pharmaceutical companies are now making, while the continuing recovery of the oil price over 25 per cent higher since the beginning of the year provided some further support to the oil majors,” said Interactive Investor analyst Richard Hunter.
Life insurer Phoenix Group fell 0.5% after reporting a drop in first-half profits. Mining stocks slide after weaker-than-anticipated Chinese economic data pushed down metal prices.
North America
Major stock indexes fell at the open of Monday’s trading session as data on factory output, investment, consumer spending and real estate signalled that China’s economy stumbled badly in July, forcing the central bank to cut interest rates.
The deceleration contributes to pressures on the world economy that include the war in Ukraine, high energy prices in Europe, financial strains in some developing-market economies and rising U.S. interest rates.
Adding to the bearish pressure on oil, Saudi Aramco said that it was on course to increase production over the next five years, and traders were bracing for news on talks about a revival of the Iran nuclear pact, which might increase global supplies.
To counter the slowdown, the People’s Bank of China reduced two key interest rates by 0.1 percentage point and injected the equivalent of $59.3 billion into the financial system to strengthen lending and economic growth. That might not be enough to get commodities to rally, however, investors said.
“What people are going to like to see is what other than bringing those rates down is being cut back on and what are the other additions, like infrastructure spending,” said Jeremy Schwartz, global chief investment officer at WisdomTree Asset Management. The WisdomTree Enhanced Commodity Strategy Fund dropped 1.5%.
Yields on Chinese 10-year government bonds dropped to their lowest since the early months of the pandemic in 2020. Stock markets in Asia had a mixed day, and the Shanghai Composite Index closed flat.
“It’s a reminder at the edges of something we already know anyway, which is that zero-Covid policies alongside big problems in the property market are weighing on Chinese growth,” said Lyn Graham-Taylor, a senior rates strategist at Rabobank. “It’s the extent to which Chinese demand spills into everyone else and it is clearly something that hangs as a headwind over the global economy.”
On the economic side, factory activity in New York state contracted more than expected in August, according to the latest data from the Federal Reserve Bank of New York.
Investors will look later this week for how much the Fed expects to raise rates next when it releases minutes on Wednesday from the central bank’s latest meeting. That could make the markets more volatile. Despite the recent gains, investors cannot agree whether this is a bear market rally which generally refers to a temporary bounce in a broader selloff.
“Traders are desperately trying to find a reason to not believe in this rally,” said Eric Hale, founder of Trader Oasis, a retail trading platform for stocks and options. Mr. Hale said now he thinks markets are getting a true bounce, one that has come to reflect that valuations have fallen low enough. He has purchased high-quality large-cap names inside the S&P 500 and not purchased energy names because of the impact on the environment with the burning of fossil fuels.
Mr. Boockvar does see the opposing case that the recovery is a bear market rally, underscored by the Fed’s aggressive monetary policy, sticky inflation, companies moderating their profit margins and risks of a slowing economy.
Traders in interest-rate futures markets are betting the Fed will lift its target for its key rate by half a percentage point in September. Investors, however, are underestimating the central bank’s determination to raise rates even as the economy slows to tame inflation back, Mr. Graham-Taylor said. He believes the Fed will raise by 0.75 percentage point for a third consecutive meeting.
The two large questions are, ‘Will the Fed overtighten and will earnings continue to come in strong?’ " Mr. Schwartz said. He predicts that small-caps will start outperforming the S&P 500 over the next two years, saying that the valuations have dropped far enough that they were signaling that a recession would soon hit. The analyst advises that investors seek stability with high-dividend companies.
