ASX lifts as Wall Street rallies on economic data

By Stan Choe
Updated

Wall Street is gaining ground after a round of reports suggested the economy is in better shape than feared.

The S&P 500 closed 1.1 per cent higher. It’s been generally edging lower since a five-week rally carried it to its highest level in more than a year in mid-June.

Wall Street had a bright session on Tuesday in New York.
Wall Street had a bright session on Tuesday in New York. Credit: AP

The Dow Jones added 0.6 per cent and the Nasdaq composite finished 1.6 per cent higher. The Australian sharemarket is set to rise with futures at 6.59am AEST pointing to a gain of 26 points, or 0.7 per cent, at the open. The ASX added 0.6 per cent on Tuesday.

Airlines were helping to lead the way after Delta Air Lines said it still sees pent-up demand in the pipeline as passengers make up for lost opportunities to travel during the pandemic. It highlighted high-income customers in particular, who account for three-quarters of spending on air travel and still look to be in good financial shape despite high inflation.

Delta’s stock took off by 6.8 per cent after it said earnings this year should come in at the top end of the range it had earlier forecast. American Airlines climbed 5.5 per cent, and United Airlines rose 5.1 per cent.

Big tech stocks were also strong, continuing a big run this year spurred by excitement around artificial-intelligence technology. Nvidia, which has been at the center of the AI frenzy, rose 3.1 per cent to vault its gain for the year so far to 186.5 per cent.

High inflation is hurting other companies more directly, though. Walgreens Boots Alliance dropped 9.3 per cent after it reported weaker profit for the latest quarter than analysts expected. The retail pharmacy company also cut its forecast for earnings this fiscal year, saying customers have become more cautious in their spending and are looking for more value amid high inflation.

Lordstown Motors sank 17.2 per cent after the electric pickup truck company filed for Chapter 11 bankruptcy protection. It had warned in early May that it was in danger of failing due to a dispute with electronics company Foxconn, which was wavering on a $170 million investment in the startup company.

The U.S. stock market has been on a tear this year despite much higher interest rates meant to get inflation under control, in part because the economy has so far managed to avoid a recession. But many investors are just delaying their predictions for the start of a recession rather than cancelling them.

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Reports on the economy on Tuesday were largely stronger than expected. A reading on consumer confidence jumped to its highest level since the start of 2022, and orders for long-lasting manufactured goods unexpectedly grew, beating economists’ forecasts for a pullback.

Sales of new homes in May also topped economists’ expectations, which sent stocks of homebuilders climbing. Lennar rose 4.1 per cent and Toll Brothers rose 3.3 per cent.

A measure of manufacturing activity in the Richmond, Virginia, region stretching from Maryland to South Carolina contracted, but not by as much as economists feared. Manufacturing has been one of industries hardest hit by much higher interest rates.

All the economic data will feed into decisions by the Federal Reserve and other central banks about whether to keep cranking interest rates higher. High rates can undercut inflation, but they do so by slowing the entire economy and raising the risk of a recession.

Christine Lagarde, the head of the European Central Bank, warned Tuesday that inflation is declining slowly and pledged to raise rates high enough “to break this persistence.” She once again made it seem nearly certain the central bank will raise rates again in July.

That’s also the expectation for the Federal Reserve. But the hope on Wall Street is that a hike next month could be the final one for the Fed, even if it has suggested recently that it could raise rates twice more this year.

Traders have largely given up on hopes of multiple cuts to interest rates in 2023, something that many were predicting earlier this year.

“We believe central banks have more work to do,” said Andrew Patterson, senior international economist at Vanguard. “We’ve always said inflation wouldn’t come down magically, even as post-pandemic supply chain issues were resolved.”

All told, the S&P 500 rose 49.59 points to 4,378.41. The Dow climbed 212.03 to 33,926.74, and the Nasdaq added 219.89 to 13,555.67.

In Asian markets, stocks in Shanghai rose 1.2 per cent. China’s No. 2 leader, Premier Li Qiang, said economic growth has accelerated and can hit this year’s official 5 per cent target. Li, speaking at a conference, gave no growth rate for the latest quarter but said it is faster than the previous quarter’s 4.5 per cent.

Stocks also jumped 1.9 per cent in Hong Kong, though they were more muted elsewhere in Asia and across Europe.

In the bond market, the yield on the 10-year U.S. Treasury rose to 3.76 per cent from 3.72 per cent late Monday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.76 per cent from 4.74 per cent.

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Source: Thanks smh.com