ASX to edge up, Wall St lifts on Fed

Australian shares are set to edge higher, with Wall Street, as the Federal Reserve held to its dovish monetary policy position.

The Federal Open Market Committee “expects to maintain an accommodative stance of monetary policy” until it achieves inflation averaging 2 per cent over time and longer-term inflation expectations remain well anchored at 2 per cent, the central bank said in a statement Wednesday (Thursday AEST) following a two-day policy meeting.

“Once again, the risk #markets got what they wanted from the @federalreserve–yet more uber dovish forward guidance,” Allianz’s Mohamed El-Erian tweeted. “Looks like it may have been an interesting meeting as 2 #FOMC members dissented.”

Dallas Fed president Robert Kaplan dissented, preferring to retain “greater policy rate flexibility”, while Minneapolis Fed president Neel Kashkari dissented in favour of waiting for a rate hike until “core inflation has reached 2 per cent on a sustained basis”.

ASX futures were 17 points or 0.3% to 5968 near 4.40am AEST; reversing earlier modest losses. The local currency was up 0.1% as of 4.46am AEST, little changed from earlier.

Shares on Wall Street were higher. The Dow advanced more than 100 points from prior to the release of the statement to be up 310 points or 1.1% at 2.46pm. The S&P 500 extended its earlier modest advance; the Nasdaq turned positive.

The yield on the US 10-year note was down 1 point to 0.67% at 2.26pm New York time; unchanged from prior to the Fed statement’s release.

The spot dollar index modestly lower at 93.0150 at 2.17pm; it was trading at 93.0490 ahead of the statement.

US oil leapt 5%, extending gains from earlier in the session.

“The Fed essentially acknowledged they were a bit behind the curve with their forecast on the economy, as projections needed tweaking to reflect the current path of the recovery,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

“However, with near-term risks to the outlook still intact, the Fed continues to reiterate that it is too early for victory laps on the economic recovery,” Mr Ripley also said.

“On the horizon, the path of the virus, the upcoming election, and the motivation for additional fiscal stimulus are all hurdles the economy needs to overcome.”

Here’s what NAB is expecting in this morning’s jobs data for last month:

“Labour force data for August should show the impact of the unprecedented stage 4 lockdown in Melbourne. These measures included the mandatory shut down or slowdown of a number of industries, which likely resulted in a large number of job losses.

“Elsewhere, we will also monitor how employment continues to recover in states with little or no virus spread, but closed interstate borders.

“As such, NAB forecasts total employment fell by 40k in August, as falls in Victoria offset small gains elsewhere. This should see total hours worked fall again, while the unemployment rate will continue to rise, where we forecast it will hit 7.8%.”

Here’s what St George anticipates: “Uncertainty still reigns supreme in the jobs market. We anticipate jobs retreated by 50,000 in August, as Victoria re-entered Stage 4 lockdown and the NSW economic recovery levelled out. The range of forecasts in the market, according to Bloomberg, is wide and ranges from a fall of 125,000 to a rise of 75,000; consensus sits at a fall of 35,000.

“We expect the unemployment rate will continue to edge higher, moving from 7.5% in July to 7.7% in August. This would be its highest rate since August of 1998. The range of forecasts are 7.4% to 8.0%.”

Today’s agenda

Local: August Labour Force; NZ second quarter GDP

NAB on the pending NZ data: “While the errors bounds are obviously wide, we formally expect a fall of 13% q/q. This is extremely close to the market’s median expectation (as of [last] Friday morning), while the RBNZ had a 14.2% fall built into its August MPS. Providing the Q2 GDP outcome is not outlandish, attention will remain solely on how well (or not) economic activity is recovering.”

Overseas data: Bank of England policy meeting; US August housing starts and building permits, Philadelphia Fed index September

Capital Economics on what to expect from the BoE: “…we think that the Bank of England will stand pat at its policy meeting on Thursday, although it is likely to acknowledge the strength of the initial recovery. Some members are, like us, wary of the rise in unemployment that is likely to follow the closure of the furlough scheme. With a QE program ongoing, the Committee doesn’t need to act yet. But we expect it to announce a further £100bn of QE at the next meeting in November.”

Market highlights

ASX futures up 17 points or 0.3% to 5968 near 4.40am AEST

  • AUD +0.2% to 73.18 US cents
  • On Wall St at 2.42pm: Dow +1.3% S&P 500 +0.6% Nasdaq +0.2%
  • In New York: BHP % Rio % Atlassian %
  • In Europe: Stoxx 50 +0.2% FTSE -0.4% CAC +0.1% DAX +0.3%
  • Spot gold +0.7% to $US1966.84/oz at 2.21pm New York time
  • Brent crude +4.2% to $US42.23 a barrel
  • US oil +5% to $US40.18 a barrel
  • Iron ore -3.4% to $US124.20 a tonne
  • 2-year yield: US 0.14% Australia %
  • 5-year yield: US 0.27% Australia %
  • 10-year yield: US 0.67% Australia 0.86% Germany -0.49%

From today’s Financial Review

OECD tips softer hit to Australian economy: The OECD expects Australia’s first recession in 29 years will see economic output contract 4.1 per cent this year, better than forecasts of a 5 per cent contraction made in June.

Gender diversity stalls among ASX 200 companies: For all the talk of gender equality in business, the latest survey shows the number of women in senior management roles has gone backwards over the past year.

    Why the housing market continues to baffle the pessimists: The housing market is continuing to defy the pessimists, with some analysts even tipping that prices in some of the country’s main cities will be picking up by the end of the year.

    Amazon, Tesla and Alibaba to win in low-growth world: Technology stocks may appear expensive but fund managers argue they offer growth at a time when many companies will struggle to lift their earnings.

    United States

    To review the Fed’s latest economic projections, click here.

    Democratic presidential nominee Joe Biden leads Republican President Donald Trump nationally among likely US voters by 9 percentage points, according to a Reuters/Ipsos poll that showed Trump’s “law and order” message falling short with its target audience of suburban voters.

    The September 11-15 opinion poll, released on Wednesday, found that 50% of likely voters said they were casting their ballots for Biden while 41% were doing the same for Trump. Another 3% said they would support a third-party candidate and the rest were undecided.

    The poll also showed that most American voters were locked in on their choice for president. Nine out of 10 likely Biden voters and 8 out of 10 likely Trump voters said they were “completely certain” about their choice for president.

    Europe

    Retail stocks surged after strong results from Zara-owner Inditex on Wednesday, but it was a mixed session for the wider European market, with Britain’s exporter-heavy FTSE 100 hit by a stronger pound.

    The pan-European STOXX 600 index closed up 0.6%, gaining for the fourth straight session, while Britain’s main FTSE 100 fell 0.4% and the euro zone’s blue-chip index gained 0.2%.

    Spain’s Inditex was a star performer after it said current trade showed a progressive return to normality, with online sales growing sharply and store sales recovering. Its shares jumped 8.1%, while the broader retail sector rose 1.3%.

    Madrid-listed stocks jumped 1%, also getting a boost from news that Caixabank and Bankia are set to approve a deal on Thursday that will create Spain’s biggest domestic lender. The banks’ shares rose 1.3% and 4.3%, respectively.

    Despite a subdued session in UK markets, shares in e-commerce firm The Hut Group surged 25% in the first major British initial public offering in seven years.

    Asia

    For stories on Australia’s China challenge, click here.

    China stocks snapped a three-session rally to close lower on Wednesday, with consumer and healthcare shares leading losses, as experts were concerned over the safety of drugs used in experimental coronavirus vaccines in the country.

    At the close, the Shanghai Composite index was down 0.4% at 3283.92. The blue-chip CSI300 index was down 0.7%, with its financial sector sub-index slipping 0.2%, while the real estate index closed 1% firmer.

    Healthcare and consumer shares fell, with the consumer staples sector losing 1.8% and the healthcare sub-index down 1.8%. Shanghai Fosun Pharmaceutical Group Co dropped 5% to the lowest in nearly two months, while index heavyweight Kweichow Moutai shed 1.9%.

    China is inoculating tens of thousands of its citizens with experimental vaccines. Aiming to reduce the likelihood of a resurgence, the vaccines are also grabbing attention in the global scramble by governments to secure supplies, potentially helping reframe China’s perceived role in the pandemic.

    At the close of trade in Hong Kong on Wednesday, the Hang Seng index was down 7.13 points to 24,725.63. The Hang Seng China Enterprises index rose 0.2% to 9845.79

    Currencies

    AvaTrade chief market analyst Naeem Aslam on the Fed: “The Fed has learned one thing really well, and that is to telegraph the message in a way that there is no surprise. No one was expecting any smoke to be coming out of the Fed’s gun today. From the Fed’s decision, it is clear that we will have to wait to see any smoke coming from the Fed’s gun.”

    Dr. Kerstin Braun, president of trade finance firm Stenn Group: “With near-zero rates and aggressive asset purchases, Jerome Powell has done what he can to stop economic freefall. However, the US economy is crying out for fiscal stimulus given how uneven the pandemic’s impact has been across a whole range of sectors – the economic rebound simply cannot be wholly organic.”

    Commodities

    Iron ore futures tumbled on Wednesday, with the Dalian benchmark shedding more than 5%, as easing concerns about global supply tightness and falling steel margins in China fuelled sell-offs.

    Iron ore’s most-traded January 2021 contract on China’s Dalian Commodity Exchange closed 5.1% lower at 796.50 yuan a tonne, its weakest level since August 3 and biggest one-day fall in nearly six months.

    Iron ore stockpiles at major Chinese ports jumped last week to the highest level since April, based on SteelHome consultancy data, while latest industry numbers showed increased shipments from Australia and Brazil.

    “Iron ore prices have likely topped in the near term, as falling blast furnace margins have started to incentivise steel mills to shift away from mainstream fines into blended fines, lumps and pellets,” Citi analysts said in a note.

    Some analysts, including those at Citi, expect prices to remain supported, however, at $US100 a tonne for the rest of 2020.

    Australian sharemarket

    Australian shares closed higher on Wednesday after a positive lead from the US technology sector set up local growth companies for a strong session.

    The S&P/ASX 200 Index added 61.3 points, or 1 per cent, to close at 5956.1 after the S&P/ASX All Technology Index added 3 per cent in the session.

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