ASX to open higher as Wall Street drifts and yields rise after solid data on the economy

By STAN CHOE

The Australian sharemarket is set to open slightly higher, with futures at 7.40am AEDT pointing to a rise of 17 points, or 0.2 per cent. The ASX lost 29.1 points, or 0.4 per cent, on Thursday and Wall Street is drifting following signals that the US job market remains solid, though it may be a touch too strong. The Australian dollar was fetching 67.05 US cents at7.45am AEDT, down 0.4 per cent.

The S&P 500 was virtually flat in late trading. The Dow Jones Industrial Average was up 114 points, or 0.3 per cent, with less than an hour remaining in trading, and the Nasdaq composite was 0.2 per cent lower.

The Australian sharemarket lost ground on Thursday and is set to open higher on Friday.
The Australian sharemarket lost ground on Thursday and is set to open higher on Friday.Credit: Tamara Voninski

Walgreens Boots Alliance sank 6.8 per cent after it nearly halved its dividend so it could hold on to more cash. That helped offset stocks of airlines and cruise-ship operators, which rose to regain some of their sharp losses from earlier in the week. Carnival steamed 3 per cent higher, and United Airlines got a 2.7 per cent lift as falling crude prices hinted at lower fuel costs.

US stocks have broadly regressed this week after rallying nine straight weeks into the end of last year. Critics said the market was due for at least a breather following its big run, which fed on hopes that inflation has cooled enough for the Federal Reserve to cut interest rates sharply this year.

Rate cuts give a boost to prices for stocks and other investments, while also relaxing the pressure on the economy and financial system. Treasury yields in the bond market have already eased since autumn on hopes for such cuts, releasing pressure on the stock market.

But Treasury yields rose Thursday following a couple reports on the job market that were stronger than expected. The economy is in a delicate phase where investors want it to remain solid, but not too hot.

Too much strength in the job market could prod the Federal Reserve to keep interest rates high because it could keep upward pressure on inflation.

A healthy job market is of course good for workers and stamps out worries about an imminent recession. But too much strength could prod the Federal Reserve to keep interest rates high because it could keep upward pressure on inflation. And the Fed has already hiked its main interest rate to the highest level since 2001.

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One report from the US government on Thursday showed fewer US workers filed for unemployment benefits last week than expected. Another from ADP Research Institute said private employers accelerated their hiring last month by more than economists expected.

A more comprehensive report on the jobs market from the US Labor Department will arrive on Friday. Economists expect that to show US hiring slowed to 160,000 jobs last month from 199,000 in November.

“If tomorrow’s numbers show the same kind of strength and the economy keeps rolling along, it’s fair to wonder why the Fed would be in a rush to cut rates,” said Chris Larkin, managing director, trading and investing at E-Trade from Morgan Stanley.

Traders are betting the Federal Reserve will cut interest rates by twice as much this year as the central bank has indicated. Wall Street is also thinking the first cut could come as soon as March, and a stronger-than-expected economy makes such predictions less realistic. Critics had already called them overly aggressive.

A third report from S&P Global said that growth for financial businesses and others in US services industries was a touch stronger last month than expected.

Following Thursday’s data reports, the yield on the 10-year Treasury rose to 3.99 per cent from 3.91 per cent late on Wednesday. The yield on the two-year Treasury, which more closely tracks expectations for the Fed, climbed to 4.38 per cent from 4.33 per cent.

Stocks have already rallied in part on expectations for sharp cuts coming to interest rates soon. If the Fed doesn’t cut as deeply and as quickly as expected, prices for stocks and other investments could be in jeopardy.

On Wall Street, Peloton Interactive jumped 14.5 per cent after it announced a partnership to bring its workout content to TikTok.

APA fell 7 per cent after it said it will buy Callon Petroleum in an all-stock deal valued at roughly $US4.5 billion, including debt. Callon Petroleum gained 3.5 per cent.

In stock markets abroad, indexes were modestly higher in much of Europe and a bit lower in much of Asia.

In Tokyo, the mood was sombre as the market reopened from the New Year holidays with a moment of silence after a major earthquake Monday left at least 77 people dead and dozens missing.

Dark-suited officials bowed their heads in a ceremony that usually features women clad in colourful kimonos. Japan’s benchmark Nikkei 225 fell 0.5 per cent.

AP

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