Australian shares are poised to edge higher at the open as investors await second-quarter CPI data. ASX futures were 20 points higher at about 7am. The Aussie retopped the US74¢ mark.
In New York, the Dow and the S&P 500 were higher. Alphabet’s superb quarterly results lifted Nasdaq to a record high. Demand for tech stocks remains high with Amazon and Facebook both scheduled to report results later this week.
Also bolstering sentiment on Wall Street, in particular with agricultural-related stocks, was a report that President Donald Trump is set to provide $US12 billion in financial help to farmers hurt by his protectionist trade policy. Separately Ivanka Trump said she’s closing her fashion line to focus on helping her father.
The US listed shares of both BHP and Rio surged as base metals rebounded. Aluminium reached a two-week high.
European shares were bolstered by earnings including from UBS.
Locally, investors will be watching the 11.30am release of second-quarter CPI data.
“A rise in CPI inflation in Australia in the second quarter, from 1.9% to around 2.2%, is unlikely to make the RBA want to raise interest rates sooner,” Capital Economics’ Paul Dales said in an overnight note. “Most of that increase will be due to the temporary influence of the recent leap in petrol prices. And we estimate that underlying inflation fell back from 2.0% to 1.9%.”
So how should one trade the CPI data?
“As the RBA is glued to the sidelines, even our firmer CPI take is unlikely to boost the AUD for long,” TD Securities said. “Negative rate differentials and ongoing tension on global trade remain significant headwinds. Fading rallies remains prudent.”
TD said it expected Q2 headline inflation to increase by +0.6%/qtr and 2.3%/yr.
“The 7% jump in the retail fuel price is the largest contribution, followed by a +2.7%/q seasonal bump in health,” TD also said with the main drags from communications (better deals and improved technology) and recreation (recently a seasonal drag due to end-of-financial year discounting).
“While there isn’t a ‘perfect’ relationship between monthly and the ‘official’ quarterly inflation, domestic inflation remains lofty and we expect that to be reflected on Wednesday,” TD said.
“This report is unlikely to impact ‘neutral’ RBA thinking or market pricing. Last quarter’s upgrade to history saw annual core inflation reach 2%/y rather than remain at 1¾%/y, but the RBA (and markets) didn’t flinch. Our forecasts are consistent with the RBA’s May projections (core remaining at 2% this year) and so supports its patient, on-hold stance,” TD concluded.
Local data: Skilled vacancies June, Second quarter CPI; NZ trade June
Overseas data: German IFO index July; US new home sales June
SPI futures up 20 points or 0.3% to 6220 at about 7am AEST
AUD +0.5% to 74.15 US cents
On Wall St: Dow +0.8% S&P 500 +0.5% Nasdaq flat
In New York, BHP +4% Rio +3.9% Atlassian -2.9%
In Europe: Stoxx 50 +0.9% FTSE +0.7% CAC +1% DAX +1.1%
Spot gold flat at $US1224.79 an ounce at 2.59pm New York time
Brent crude +0.4% to $US73.35 a barrel
US oil +0.8% to $US68.46 a barrel
Iron ore -0.3% to $US65.57 a tonne
Dalian iron ore n/a
LME aluminium +0.7% to $US2084.5 a tonne
LME copper +2.7% to $US6295 a tonne
2-year yield: US 2.63% Australia 2.12%
5-year yield: US 2.82% Australia 2.33%
10-year yield: US 2.95% Australia 2.72% Germany 0.39%
From Today’s Financial Review
Magellan tips global equity sell-off: “This coming together of all-time-record asset prices, central banks withdrawing liquidity and a very large and late cycle fiscal stimulus is really throwing a very uncertain picture here,” Hamish Douglass said.
Holy fight over derivatives speculation: Kenneth Hayne’s focus on the ethical failings in Australia’s financial system echoes the efforts by Pope Francis to call out allegedly immoral activity in global financial markets.
Macquarie in court again over adviser pay: Macquarie Group’s employment contracts in its private wealth unit are set to confront further court scrutiny as a third group of advisers take on the bank in legal action over pay and entitlements.
The S&P 500 on Tuesday closed at its highest level since February 1 as Alphabet’s blowout results bolstered expectations of a robust earnings season.Shares of Alphabet jumped 5.3 per cent to a record $US1275 after the online search giant’s quarterly results trounced Wall Street estimates.
Alphabet shares touched a record high of $US1275.00 after the online search company’s quarterly results surpassed Wall Street estimates. The shares closed up 3.9 per cent at $US1258.15.
Google’s parent company was the biggest boost to the S&P 500. Others in the FANG group of momentum stocks rose as well. Shares of Facebook and Amazon were up 1.8 per cent and 1.5 per cent, respectively. Both companies report earnings later this week.
“We’ve seen some positive returns come in today,” said Emily Roland, head of capital markets research at John Hancock Investments in Boston. “Investors are able to focus on fundamentals again and look at what’s happening from an earnings standpoint.”
The Nasdaq Composite dropped 1.11 points, or 0.01 per cent, to 7840.77. It reversed course after having hit a record high earlier in the session.
So far in 2018, the Nasdaq has climbed 13.6 per cent, more than twice the 5.5 per cent gain of the S&P 500. Some investors said the Nasdaq’s reversal indicated some profit-taking driven by lingering concerns over trade issues. Earlier on Tuesday, US President Donald Trump extolled tariffs in a post on Twitter.
Strong results from bank UBS, car company PSA and chipmaker AMS propelled European stocks higher on Tuesday, breaking a three-day slide as the earnings season delivered a boost to the market.
Some of this year’s worst-performing sectors – autos and banks – jumped thanks to these solid updates.
The pan-European STOXX 600 accelerated gains to touch its highest level in more than a month, ending up 0.9 per cent, with heavyweight UBS among the biggest boosts, up 4.3 per cent after its second-quarter profit topped expectations.
Gains in UBS boosted the banks sector up 2.2 per cent, with Credit Suisse, Italy’s Unicredit and Spain’s BBVA climbing 2.2 to 3.6 per cent.
PSA Group jumped nearly 15 per cent after the Peugeot owner reported strong profits thanks to a turnaround at its newly acquired Opel-Vauxhall division.
The stock hit its highest level since June 2008, a 10-year high, and UBS analysts said the results would likely trigger upgrades to consensus full-year earnings of about 30 per cent.
PSA provided a boost to the autos sector which has been a main victim of US threats of higher tariffs on car imports. The sector index jumped 2.6 per cent, second only to basic materials which climbed 4.8 per cent on stronger metals prices.
In an earnings season where investors are focusing on companies’ outlook, guidance from several of them was particularly strong, driving sharp share price gains.
Austrian chipmaker and iPhone supplier AMS jumped as much as 13 per cent before paring some gains after the company said new orders would secure strong growth in the second half, and reported higher than expected second-quarter revenue.
“AMS has helped quell widespread concerns in the market regarding Apple’s ramp of 3D sensing components for its new iPhones in the second half, by providing very strong guidance for Q3 2018,” Liberum analyst Janardan Menon said.
Overall second-quarter earnings growth for the STOXX 600 was expected to come in at 8.1 per cent year-on-year, stronger than the first quarter.
Chinese government bond yields and stocks rose on Tuesday after Beijing vowed to pursue a more ‘vigorous’ fiscal policy, as authorities stepped up efforts to support growth amid rising economic headwinds.
Expectations of further loosening in monetary conditions drove the offshore yuan down to a 13-month low, and underscored a broad change in China’s policy direction as fears grow that an increasingly heated Sino-US trade war could deal a harsh blow to the economy.
“The government is sending a clear signal that it is preparing to defend growth, … Premier Li may be concerned about the negative impact of deleveraging on growth,” ANZ economists Raymond Yeung and Betty Wang said in a note.
The yield on 10-year Chinese government bonds ended 2.9 basis points higher at 3.562 per cent.
As investors sold bonds, the country’s stock markets moved higher on the prospect of policy easing. The Shanghai Composite index and the blue-chip CSI300 index both closed up 1.6 per cent.
Shanghai’s benchmark index and the CSI300 remain the world’s worst-performing major stock indexes this year, but some investors say that fears of a rout in Chinese markets are overdone.
On top of the policy easing, analysts also cited new rules governing financial institutions’ wealth management and asset management businesses for the jump in shares, noting they were less stringent than expected and would help to reduce systemic risks.
The long-awaited wealth management rules, released on Friday, aim to push banks to standardise their wealth management businesses and to invest wealth-management product funds into the capital markets in a compliant way.
In the currency market, expectations of further policy easing piled pressure on a fragile yuan, which suffered its worst month on record in June.
The spot market opened at 6.8145 per US dollar and eased to a low of 6.8295. It ended at 6.8100 by the domestic close, its weakest since June 27, 2017.
If the onshore yuan finishes the late night session at the same level, it would have lost 0.36 per cent against the dollar for the day.
The offshore yuan fell nearly 0.6 per cent to a low of 6.8448 per dollar, its weakest since June 2017. It was trading at 6.8350 as of 0830 GMT.
The People’s Bank of China (PBOC) had set the midpoint rate at 6.7891 per dollar ahead of the market open, its weakest since July 11, 2017. The fixing was 298 pips or 0.44 per cent weaker than Monday’s midpoint of 6.7593.
The fixing matched market forecasts and dragged the spot rate lower.
Elsewhere, the euro ceded its gains on Tuesday as robust but lower-than-expected business growth data did not alter market expectations that rates in the United States and the euro zone will continue to diverge.
IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index, seen as an indicator of economic health, showed slower-than-expected growth.
The PMI data was “certainly not strong enough to bring forward the timeline for an eventual rate hike for the (European Central Bank), but also probably not weak enough to push that timeline out any further,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
With the US central bank likely to raise interest rates at least twice more this year and the ECB unlikely to raise interest rates until the second half of 2019, traders remained cautious about the outlook for the euro.
The euro was trading 0.06 per cent lower at $US1.1684 after hitting an intraday high of $US1.1717, Reuters data showed.
Petrol prices to drive inflation higher: Higher fuel costs are likely to account for a large part of the lift in overall consumer prices over the June quarter.
Aluminium hit a two-week high on Tuesday as funds cut bets on lower prices placed in anticipation of sanctions on Rusal being lifted, with the market also factoring in an expected drop in supplies from China.
Benchmark aluminium ended up 0.7 per cent at $US2084.5 a tonne after climbing as high as $US2114, its strongest since July 10.
US Treasury Secretary Steven Mnuchin said on Friday the objective was “not to put Rusal out of business” and the government was open to removing the Russian aluminium producer from a US sanctions list.
“Some of it is to do with the Rusal situation, but fundamentals are also healthy. Supply and demand is better balanced after decades of oversupply, chiefly from China,” said Societe Generale analyst Robin Bhar.
“China is cutting illegal capacity, slowing capacity growth, and there will probably be the winter capacity cuts again between November and March to reduce pollution.”
China accounts for more than 55 per cent of global aluminium supplies estimated this year at about 65 million tonnes.
A recent Reuters survey showed that analysts on average expect the aluminium market to be in a deficit of 599,000 tonnes this year and 570,000 tonnes in 2019.
“There could be about 1.9 million tonnes of smelting capacity coming online in the second half of 2018, but we expect capacity expansion will be delayed given ongoing weakness in smelter margins,” Citi analysts said in a note.
What’s in store for the IPO market in 2018: A strong performance is on the horizon, with a pleasing number of listings in the first half backed up by a solid pipeline of deals in the lead up to Christmas.
Strong performances from the mining and healthcare sectors lifted the local sharemarket as Australian investors showed renewed confidence.
The S&P/ASX 200 index closed 38.2 points, or 0.6 per cent higher, at 6265.8 lifting from a big loss on Monday.
The major mining stocks recovered from a slump in the previous session as the price of iron ore lifted.
BHP Billiton led the market gains as it rose 1.7 per cent to $33.01 while Rio Tinto closed 1.3 per cent higher at $80.90. South32 also closed higher at $3.57, up 2.3 per cent following a broker upgrade from Citi who lifted the miner’s price target by over 13 per cent to $4.30.
with Reuters, Bloomberg, AAP
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