Summary: US markets are buoyed by optimism that earnings estimates won’t be as bad as feared, with earnings growth of 2% expected on average for the quarter, with commodity companies to see the most earnings. The S&P500 is up 12% from its October low. If big-tech earnings disappoint, such as Microsoft and Tesla and if the Fed’s preferred inflation gauge rises unexpectedly, then bullish sentiment could quickly evaporate. The Australian share market breathes down the neck of its record high. The Aussie dollar trades at 70.28 US cents, its highest level since August. What’s next?
Tuesday 24 January 2023
In equity markets, US markets closed higher on Monday, buoyed by optimism that earnings estimates won’t be as bad as feared, with earnings growth of 2% on average for the quarter expected, with commodity companies to see the most earnings. The S&P500(US500.I) rose 1.2% and now has climbed about 12% from its October low. But what could rock the boat is if big-tech earnings disappoint, such as Microsoft and Tesla. Plus, the Fed’s preferred inflation gauge is on watch later this week. If it breaks its downtrend, things could change. The Core Personal Consumption Expenditures (PCE) price index for December is expected to show prices fell from 4.7% QoQ to 3.9%. If that occurs, we could see equity market sentiment pick up; and the US dollar and bond yields fall.
The Australian share market’s ASX200(ASXSP200.I) is breathing down the neck of its all time high, and likely to hit a new high provided inflation data behaves. In company news, Auckland Airport report Passengers numbers are now 75% of Pre-Covid levels. Which is a sign that the travel sector will report stronger earnings and outlooks in February
In commodities; Wheat prices tumbled to their lowest price in more than a year as snow boosted the crop outlook, which is positive sign that food inflation is easing , while cattle prices continued to move up slightly and trade around their highest levels.
Oil rose to a 7-week high with Chinese road traffic congestion rising 22% from a year ago, which is a positive sign that 15 key cities are striving to return to normalcy. Oil advanced while gold was little changed.
Copper and iron ore are holding fresh highson expectations China will increase buying after Lunar New Year holidays end. Copper trades around its highest level since June, up 32% from its low with supply concerns creeping in from Peru. Iron ore (SCOA) prices are slightly lower today after hitting a new six-month high yesterday after swinging up about 9% this month. We are weary of profit taking giving the iron ore price is up 70% and Copper is up 30%, but we believe fundamental support higher prices over the medium-longer term.
In FX the AUDUSD jumped above a key psychology level today, rising to 70.28 US cents, its highest level since August last year ahead of Australian CPI out tomorrow. Inflation is expected to rise to 5.8% YoY from 5.6% (trimmed mean CPI), amid tighter energy markets, and higher metal prices. Higher inflation means the RBA can keep rising rates, even at a slower pace. The AUD is also supported by China’s reopening which will add to Australia’s national income. If the AUD crosses 71.00c the next level we will be watching is 77.00.
As for economic news which is important for FX traders; Today we’ll get a gauge on if Australia, Japan’s, and then the US, and Europe’s’ Manufacturing & Services sectors are growing or contracting. Readings above 50, indicates an expansion, below are contraction, So watch respective currencies. Tomorrow, Australia and NZ CPI are out and the Bank of Canada’s interest decision.
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