ASX set to edge up as Wall Street rebounds

By Stan Choe

US stocks have bounced back following their worst tumble in months.

The S&P 500 was 1 per cent higher in mid-afternoon trading, the Dow Jones was up 0.6 per cent and the Nasdaq composite was 0.7 per cent higher. The Australian sharemarket is set for gains, with futures at 5.02am AEDT pointing to a ride of 6 points, or 0.1 per cent, at the open. The ASX shed 1.2 per cent on Thursday to retreat from its record high.

Tech stocks recovered some of their sharp tumble a day before.
Tech stocks recovered some of their sharp tumble a day before.Credit: Bloomberg

A suite of reports suggested the economy remains solid, blasting past earlier expectations for a recession, while pressures on inflation may be easing. Such data could give the Federal Reserve more of the evidence it wants of a slowdown in inflation before it will deliver the cuts to interest rates that investors crave. A day earlier, stocks fell sharply after the Fed’s chair warned it doesn’t have enough such evidence yet.

Lower rates help all kinds of investments, and they tend to benefit high-growth stocks in particular. Tech stocks recovered some of their sharp tumble a day before, when Alphabet and Microsoft sank despite reporting stronger profits for the latest quarter than analysts expected.

Microsoft rose 1.5 per cent a day after falling 2.7 per cent. Google’s parent company, Alphabet, added 0.7 per cent after tumbling 7.5 per cent.

Big Tech stocks are facing very high expectations after they soared much more than the rest of the market last year, carrying the S&P 500 to records recently. Apple, Amazon and Meta Platforms, the owner of Facebook and Instagram, will report their latest results after trading ends for the day. They’ll also need to deliver big numbers to justify their big runs higher.

Merck climbed 3.8 per cent after the pharmaceutical giant’s report in the morning delivered stronger profit and revenue for the latest quarter than analysts expected. Etsy jumped 8 per cent after it added a partner from Elliott Investment Management to its board, who said he sees opportunity to significantly increase the company’s value.

On the losing end of Wall Street, New York Community Bancorp. fell another 7.1 per cent after plunging 37.7 per cent a day before, when it reported a much larger quarterly loss than expected and cut its dividend to build its financial strength. The surprising report caused stocks of other regional banks to tumble, reviving uncomfortable memories of the banking crisis last year that led to the collapses of Silicon Valley Bank, Signature Bank and others.

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New York Community Bancorp. had acquired much of Signature, and analysts say much of its struggles are related to that. But its losses tied to commercial real estate are a reminder of challenges facing the entire industry. The KBW Nasdaq Regional Bank index fell 4.4 per cent, following Wednesday’s tumble of 6 per cent.

MetLife sank 5.9 per cent despite reporting stronger profit and revenue than Wall Street expected. Analysts pointed to its forecast for 2024, where the insurer put some numbers on challenges it had previously discussed.

Peloton Interactive fell 23.2 per cent after it gave a forecast for upcoming revenue that fell short of analysts’ expectations. That was despite it roughly matching forecasts for the latest quarter.

In the bond market, the yield on the 10-year Treasury fell to 3.84 per cent from 3.92 per cent late Wednesday.

It sank after one report showed that slightly more workers applied for unemployment benefits last week than expected. While no one wants workers to lose their jobs, the number is still low relative to history. And Wall Street wants to see a cooldown in the job market, which could keep a lid on inflationary pressures.

A separate report offered similar encouragement for traders. It said US workers were much more productive in the last three months of 2023 than expected, producing more stuff per hour worked. Strong growth in productivity could allow workers to get bigger raises in pay without adding more pressure on inflation.

“If companies can generate strong productivity growth, they will be able to control costs and protect margins without sacrificing talent in an environment of still-elevated wages and fading pricing power,” said EY Chief Economist Gregory Daco.

Data released later in the morning suggested the US manufacturing industry is improving after struggling for more than a year under the weight of high interest rates. Manufacturing activity shrank for a 15th straight month in January, but not by as much as economists expected. Growth in new orders is helping to boost the industry, according to the Institute for Supply Management.

Potentially concerning, though, was that prices for raw materials increased in January following eight months of decreases.

Traders are increasingly betting the Federal Reserve will begin cutting interest rates in May, after pushing back expectations from March. Whenever it does begin, it would mark a sharp turnaround after the Fed hiked its main interest rate to the highest level since 2001 in hopes of getting inflation under control.

High interest rates intentionally slow the economy, and they undercut prices for investments.

In stock markets abroad, London’s FTSE 100 slipped 0.2 per cent after the Bank of England said it’s keeping its main interest rate at a near 16-year high as inflation in Britain unexpectedly rose to 4 per cent in December.

Indexes were lower across much of Europe and mixed in Asia.

AP

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Source: Thanks smh.com