ASX to rise, Wall St advances on Fed pledge

Australian shares are set to open higher, bolstered by gains in New York after the US central bank pledged to keep interest rates at record lows for longer.

ASX futures up 40 points or 0.7% to 6015 near 4.15am AEST. The currency was higher.

In a statement after a two-day meeting, the Federal Reserve’s policy committee expected to maintain the current target range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The committee also said: “The path of the economy will depend significantly on the course of the virus.”

TD Securities said: “There was very little new in this statement, but its explicit acknowledgement that the economic outlook depends on the country’s success in mitigating virus gives it a slightly dovish hue. The Federal Reserve will continue to provide all the support it can, but ultimately, the economy will not recover fully until the health crisis has passed.

“The US yield curve is extremely flat and market rate expectations are anchored at zero (or lower) well into the future. As such, the most effective way to increase accommodation may be to raise inflation expectations. Adopting an average inflation regime in which the Fed must overshoot its 2% target in order to make up for its past undershoot, could go a long way to supporting this goal.”

Today’s agenda

Local: Building approvals June, Trade prices second quarter; NZ building permits June, ANZ business confidence July final

Overseas data: Euro zone economic and consumer confidence July, Unemployment rate June, CPI July; US second quarter GDP

Market highlights

ASX futures up 40 points or 0.7% to 6015 near 4.15am AEST

  • AUD +0.3% to 71.81 US cents
  • On Wall St near 2.25pm: Dow +0.4% S&P 500 +1% Nasdaq +1.2%
  • In New York: BHP +1.4% Rio +2.4% Atlassian +2.9%
  • In Europe: Stoxx 50 -0.1% FTSE flat CAC +0.6% DAX -0.1%
  • Spot gold +0.5% to $US1967.90 an ounce at 2.23pm New York time
  • Brent crude +1.1% to $US43.69 a barrel
  • US oil +0.5% to $US41.25 a barrel
  • Iron ore +3.7% to $US110.57 a tonne
  • LME aluminium % to $US a tonne
  • LME copper % to $US a tonne
  • 2-year yield: US 0.13% Australia 0.26%
  • 5-year yield: US 0.25% Australia 0.40%
  • 10-year yield: US 0.58% Australia 0.87% Germany -0.50%
  • US prices as of 2.24pm New York

From today’s Financial Review

Team Australia splinters as economy fears grow: As Queensland prepares to shut its borders to Sydneysiders, Scott Morrison has praised NSW’s ability to live with the virus while slamming the ‘Victoria wave’.

Full speed ahead as Rio tips strong China growth: The iron ore miner believes the Chinese economy could grow at up to 8 per cent in 2021.

How some gold miners missed the rally: It may have looked like a wise idea at the time but hedging future gold production is starting to hurt as the precious metal rallies to new highs.

CBA shareholders sidestep worst of dividend crackdown: While CBA shareholders face a lower dividend this year when compared to to last year, they are in a better position than shareholders in rival banks who may have two dividends subject to the new cap.

United States

Boeing slashed production on its widebody programs, delayed the arrival of its newest jet, and confirmed the demise of its iconic 747, as it reported a bigger-than-expected quarterly loss.

The plane maker now expects to resume 737 MAX deliveries to airline customers before year-end in the United States, a slip from earlier guidance of end-September. That means the jet’s US return to service could slip to 2021.

GM said if the US economy continues to recover from the coronavirus pandemic and the auto industry does not experience any further production shutdowns, the No. 1 US automaker should be able to generate enough cash to pay off a $US16 billion loan by the end of the year.

The US goods trade deficit dropped 6.1% to $US70.6 billion last month. Exports of goods accelerated 13.9% to $US102.3 billion, eclipsing a 4.8% increase in goods imports to $US173.2 billion. Goods imports fell in May to their lowest level since July 2010.

Europe

Europe’s main stocks benchmark closed nearly flat on Wednesday.

In a busy earnings day, the pan-European STOXX 600 closed down 0.1%, with healthcare and banks dragging on the main index, while retailers jumped 1.4%.

Drugmaker GlaxoSmithKline fell 3.2% as it missed second-quarter profit estimates after lower sales of its existing vaccines, while lender Barclays dropped 6.1% as it set aside a higher than expected £1.6 billion to cover a possible rise in loan losses due to the pandemic.

The pair helped keep London’s FTSE 100 nearly flat.

France’s CAC 40 outperformed its continental peers with a 0.6% rise after positive earnings updates from luxury group Kering, electrical equipment group Schneider Electric and consulting firm Capgemini.

“Markets have rallied aggressively, so what we’re seeing is companies coming with better numbers but not seeing an additional uptick in markets,” said Will James, deputy head of European equities at Aberdeen Standard Investments.

“Companies that have managed earnings and sales, there have been aggressive cost measures put in place.”

Asia

Hong Kong’s Hang Seng index edged up on Wednesday, buoyed by strong inflows from onshore market, though concerns over a resurgence of coronavirus cases in the city kept gains in check.

At the close of trade, the Hang Seng index was up 117.41 points, or 0.5%, at 24,801.94. The Hang Seng China Enterprises index rose 0.4% to 10,176.14.

At the close, the Shanghai Composite index was up 2.1% at 3294.55, its best daily performance since July 20.

The blue-chip CSI300 index was up 2.42%, the largest daily gain since last Monday, with its financial sector sub-index higher by 2.2%, the consumer staples sector up 0.8%, the real estate index up 1.1% and the healthcare sub-index up 4%.

Capital Economics on China’s near-term economic outlook: “Output is already back above the level of a year ago and most of Q1’s surge in unemployment has reversed too. With policy support set to remain strong, China is on course to return to its pre-virus path by the end of the year, far earlier than any other major economy.”

Still Capital Economics is bearish on the longer-term outlook: “All told, we think China’s trend growth rate will slow from around 5% currently (on our estimates) to about 2% from 2030 onwards. In other words, China will fall off the path of rapid development laid down by Japan, Korea and Taiwan. Instead, it will start to resemble most middle-income EMs which have converged with developed economies at a much slower pace, if at all.”

Currencies

Pantheon Macroeconomics’ view on the Fed statement: “In one line: No changes; awaiting virus/fiscal developments.

“The Fed made no policy changes, as expected, and the key language of the statement is unchanged. The Fed remains ‘committed to using its full range of tools to support the US economy’, while the rate of purchase of securities will continue ‘at least at the current pace’.

“The statement acknowledges the upturn in most of the recent hard data, but notes that activity and employment ‘remain well below their levels at the beginning of the year’. There’s no mention of the recent flattening in the near-real-time unofficial data …

“In short, this is a holding operation, pending developments with both the virus itself and fiscal policy. We think it likely that the pace of QE will have to be increased when the Treasury begins to issue the $US1-1/2T extra debt we reckon will be needed to finance the next relief bill, which will pass either immediately before the August recess – due to start on the 10th but can be delayed – or after Congress returns on September 7.

“We’re also expecting the Fed to announce enhanced inflation-contingent forward guidance at the September or November meetings, but we remain of the view that formal yield curve control is not imminent.”

Commodities

In a detailed analysis of global mobility and COVID-19, Bank of America said it forecasts lower demand for oil and yet steady demand for industrial metals. “With supply constrained by mining disruptions, commodities like copper and iron ore have rallied firmly since April and should continue to gain support from a cyclical rotation.”

Australian sharemarket

The ASX edged lower on Wednesday, after confidence that the country is recovering from the COVID-19 pandemic flagged after Queensland closed its border to Sydneysiders.

The S&P/ASX 200 index sagged 0.2 per cent, or 14.15 points, to end the session at 6006.40.

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