This followed an uneven session on Wall Street overnight, which saw contracted manufacturing data overshadow the optimism spurred by comments from US Federal Reserve’s Chair, Jerome Powell.
Speaking in the US on Wednesday, Powell said the central bank could begin moderating its pace of rate hikes as soon as December. He noted a key measure of inflation – one that the FOMC particularly focused on – had eased in October, triggering relative optimism among global investors.
However, the Fed has been clear about its intent to continue raising interest rates until it was certain inflation was cooling. The Fed has raised its benchmark rate six times since March, driving it to a range of 3.75 per cent to 4 per cent, the highest in 15 years.
Saxo Market analyst Jessica Amir said the market’s recent dip should not rattle investors too much due to the ASX’s long-term strength throughout the past seven months, a period that has seen heavyweight players like Woodside Petroleum soar regardless of weaker days like today.
“We’re just 3 per cent away from hitting a record all-time high,” Amir said. “We’re getting good news, out of the US and locally, that inflation is softening. This is good for mortgage holders, businesses, and equity markets because it means that central banks won’t necessarily have to be so aggressive with rate hikes going forward, and that’s what caused the equity markets to collapse earlier in the year.”
China’s easing of COVID-19 restrictions in certain provinces (Guangzhou and Chongqing) also offered a “lifeline” to the commodities sector, according to Amir. Gold and copper ore enjoyed a bumper session, bolstered by the belief that a reopened China would increase demand for commodities. She said this is further supported by a falling US currency since commodities stocks are all traded in US dollars.
Although oil prices pared some losses ahead of The Organisation of the Petroleum Exporting Countries (OPEC) meeting this weekend – where the world’s major oil producers are expected to affirm their stance and not cut production – Amir said movements in China would almost certainly strengthen oil prices over time.
Amir said Friday’s poorer overall performance could be partly attributed to a common and relatively harmless occurrence on the market: traders “taking profit off the table” to preserve capital after making gains on certain stocks.
“Naturally markets do go in ebbs and flows, but investors are looking for a long-term sustainable uptrend,” Amir said. “You need to look past the noise, look past the intraday moves if you’re a long-term investor and thinking about long-term trends.”
Elsewhere, contracted US manufacturing data also impacted global markets as lower spending on machinery and equipment would likely weaken September quarter growth. The October index fell to 49.0 from 50.2, which ANZ rates strategist Jack Chambers said could suggest the economy “beginning to cool in response to the Fed’s aggressive rate hikes this year”.
Locally, ANZ economists, including Felicity Emmett, said they did not expect what they coined a “Santa pause” from the RBA next week, despite the weak October retail sales and softer-than-expected October monthly CPI data. Both ANZ and Westpac forecast a tightening of 25 basis points.
“With the RBA not meeting again until February and the recent wages and employment data being robust, we expect the cash rate target to be lifted 25 basis points to 3.1 per cent,” Emmett said.
Meanwhile, yields on both short-term and long-term bonds fell. The yield on the 10-year Treasury, which influences mortgage rates, edged lower to 3.56 per cent from 3.61 per cent late on Wednesday. The local dollar jumped by 0.4 per cent to 68.14 US cents.
Tweet of the day:
Quote of the day: “I made a lot of mistakes,” said the fallen founder of crypto exchange FTX, Sam Bankman-Fried, on Wednesday via video at the New York Times DealBook Summit. Billions are missing from the firm’s balance sheet; however, the disgraced crypto mogul has repeatedly denied any instance of fraud on his part, while admitting he should have focused more heavily on risk management and customer protection. “There are things I would give anything to be able to do over again. I didn’t ever try to commit fraud on anyone.”
You may have missed: In further troubling crypto news, Australian bitcoin mogul Greg Dwyer was found guilty of violating US banking laws during his time as a senior executive at the cryptocurrency exchange, BitMEX. He was sentenced to one year probation, and was also fined $US150,000. Dwyer, alongside his three BitMEX co-founders, were charged in 2020 following allegations that they allowed customers to sign up to the crypto betting group using fake passports and other incorrect information, thus avoiding anti-money laundering laws.
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