ASX lifts on commodity strength despite latest inflation data

The lowdown:

Kalkine Group chief executive Kunal Sawhney said that despite some key Australian Bureau of Statistics releases on Wednesday, the primary driver of the Australian sharemarket was Wall Street.

“Today’s ASX movement indicated that domestic investors’ sentiment is being shaped more by what happened overnight on Wall Street than by the country’s own inflation or other data,” he said.

“The trajectory of the Aussie and other markets in 2023 shows that investors can draw strength, even amid entrenched inflationary forces and staunchly hawkish central banks, given the wider economy does not show signs of intense weakness. This same optimism seems to have helped the benchmark shine today even as data released by the ABS was not as per expectation.”

ABS data released on Wednesday showed that Australia’s monthly inflation index came in a touch higher than expected. Headline inflation landed at 7.3 per cent, while trimmed mean inflation was 5.6 per cent, compared with expectations of 5.5 per cent.

Meanwhile, job vacancies have declined 4.9 per cent from August, driven by healthcare and social assistance, but remain about 95 per cent higher than they were before the pandemic.

The next big marker for the market is  Thursday’s update on how bad inflation was last month at the consumer level.

Sawhney said the ABS data did not trigger any major sell-offs because of investors’ perception that inflation had become entrenched, but that upbeat retail data was a key driver of the consumer discretionary and materials sectors which picked up pace on Wednesday.

Overnight on Wall Street, stocks drifted higher after being largely flat during the trading session.

The S&P 500 was 0.5 per cent higher in afternoon trading after flipping between small gains and losses through the day.

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While investors were hoping for clues about where the Fed is heading, its chair Jerome Powell gave little news on rates at a forum in Stockholm on Tuesday.

The next big marker for the market is Thursday’s update on how bad inflation was last month for consumers. Economists expect inflation to have slowed further to 6.5 per cent from 7.1 per cent in November.

A worse-than-expected reading could dash the building hopes on Wall Street that the Fed may pause and perhaps even cut rates by the end of the year, which would reduce the drag on prices for investments. Some investors see the economy successfully walking the tightrope of slowing enough to kill off high inflation but not so much as to cause a painful recession.

The World Bank said in its annual report on Tuesday the global economy would come perilously close to a recession this year, but the Fed doesn’t envision rate cuts until 2024 in a bid to make sure inflation is appropriately curbed.

It usually takes a while for rate rises to be fully felt in the economy. That could push a recession off to the second half of the year, said Barry Bannister, chief equity strategist at Stifel. The global economy could also benefit from strengthening in China, as it removes restrictions meant to keep COVID-19 at bay but that also hurt its economy.

“You’re looking at a pretty good six months where things get better at the margins and then trouble starts to rear its head,” Bannister said.

Meanwhile, big US companies this week will begin showing investors how much profit they made during the last three months of 2022.

Macy’s and several businesses have already given warnings about their results, which have raised business costs and squeezed customers’ spending, for the fourth quarter of 2022 and into 2023.

Troubled home goods retailer Bed Bath & Beyond on Tuesday reported weaker revenue for its latest quarter than analysts expected, though the size of its loss wasn’t as bad as Wall Street forecast.

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“A carbon border adjustment mechanism is simply a punitive tax on imported goods that will do little to incentivise investment in low-emissions technology or increase the competitiveness of Australian industry,” said ACCI policy chief David Alexander, referring to federal tariffs that may be imposed on emissions-intensive imports into Australia