ASX set to edge higher as Wall Street struggles for direction
By Damian Troise and Alex Veiga
Stocks were mixed in afternoon trading on Wall Street on Thursday as investors continued to review the latest updates on the economy and corporate earnings.
The S&P 500 is 0.1 per cent lower in late trade, the Dow Jones has slipped by 0.3 per cent while the Nasdaq has added 0.3 per cent. The ASX is set to open slightly higher, with futures at 4.57am AEST pointing to a gain of 11 points, or 0.2 per cent, at the open.
US crude oil prices fell 2.3 per cent and weighed on energy stocks. Exxon Mobil fell 2.1 per cent. Health care stocks also lost ground. Eli Lilly dropped 3.8 per cent.
A mix of retailers and industrial companies made solid gains. AutoZone rose 1.5 per cent and Deere rose 1.7 per cent.
The yield on the 10-year Treasury fell to 2.69 per cent from 2.74 per cent late on Wednesday.
Stocks have meandered this week, leaving major indexes mostly higher. August’s gain follows a standout July that was the S&P 500’s best month since late 2020. But markets remain volatile as investors try to determine the economy’s path ahead amid the highest inflation in four decades and efforts from central banks to fight higher prices.
Earnings remain in focus on Wall Street as investors look for more clues on how inflation is impacting various industries. Twinkie maker Hostess fell 4.3 per cent after giving investors a disappointing profit forecast for the year. Bleach and consumer products maker Clorox fell 5 per cent after also announcing a weak earnings forecast.
Companies have been raising prices on everything from food to clothing to help offset the impact of inflation on supply chains, but the pressure has become too much for many consumers. A surge in gasoline prices throughout the year worsened inflation and prompted spending cutbacks.
The Federal Reserve has been aggressively raising interest rates to try and slow the economy and fight inflation, along with other central banks. The Bank of England on Thursday initiated its biggest rate hike in more than a quarter of a century.
Recent economic data from retail sales and employment reports has shown that the economy is already slowing down.
“The cure for high inflation is sometimes high inflation,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management. “The narrative that we might have been at or past peak inflation is being validated by some of the data coming out.”
The surge in consumer demand and lack of supplies for many goods initially drove inflation. The resulting higher prices have now prompted consumers to ease off of spending. But, the Fed’s aggressive interest rate policy has investors concerned that the central bank could hit the brakes on the economy too hard and veer it into a recession.
That concern is being reflected by the bond market, where the yield on the two-year Treasury remains higher than the yield on the 10-year Treasury. It’s a relatively rare occurrence that some see as a precursor for a recession within a year or two.
A bright point in the broader economy has been a strong employment market. New data from the Labor Department on Thursday showed the number of Americans applying for jobless benefits last week rose in line with expectations, as the number of unemployed continues to rise modestly.
The latest data follows updates earlier this week showing that job openings eased, but still remain at record highs. On Friday, the Labor Department delivers its July jobs report, which is expected to show some signs of tightening.
Investors are closely watching the latest jobs data to gauge whether any tightening in the employment market might prompt the Fed to eventually ease up on its interest rate hikes, potentially lessening the chance of the central bank bringing on a recession.
“They wanted to quell demand and temper inflation and they wanted to do so without unduly impacting the labour market in negative way,” Nixon said. “So far, the Fed is going to assess all of this as according to plan and they’re going to keep going.”
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