Proactive Investors
Published Jan 12, 2023 10:02
Updated Jan 12, 2023 10:30
ASX to rise after Wall St continues to stay positive
The ASX is set to rise today with ASX 200 Futures up 57 points, or 0.79%, as of 8:30am AEST.
Any rise today will be a carry-over from the positive sentiment on Wall St overnight which saw traders continue to buy bonds and stocks on the belief that inflation will soften further.
DoubleLine Capital founder Jeffrey Gundlach urged investors to put more faith in the bond market than the Federal Reserve. “My 40-plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says,” Gundlach said at a webcast.
The current minor rally may be put to the test today US time, as the highly awaited US inflation reading will be released.
The Bureau of Labor Statistics’ December CPI reading is expected to show a 6.5% rise from a year earlier, slowing from a 7.1% year-over-year rise seen in the previous month.
The question the Fed must ask itself is whether inflation is slowing fast enough. The December CPI figure has great influence over the Fed’s rate decisions – the next one due on February 1.
The central bank is expected to pause rate hikes at the meeting but a decision on rates could go either way.
“After hiking 50 basis points at the December meeting, we expect the Fed moves to a 25bp hiking pace in early February, and ultimately pause around 5%,” wrote Pimco’s economists Tiffany Wilding and Allison Boxer, in a Tuesday note.
Contrary to this, officials feel the central bank must raise rates to above 5% to bring inflation back to a 2% target.
Fed funds futures traders see a 78% likelihood of a 25 basis point hike at its February meeting. There is a further 68% chance of another in March. These hikes would bring the terminal rate to merely 4.75-5% by mid-year.
“Inflation swaps currently see inflation falling below 2.5% by the summer of 2023, which seems hopeful,” Mott Capital Management founder Michael J Kramer said in a Monday note.
“This week’s CPI reading will be essential in maintaining that view and could prove disastrous if CPI comes in hotter than expected, veering market-based inflation expectations off course.”
According to Spouting Rock Asset Management chief strategist Rhys Williams, “If you get a number in the low four [per cent], the stock-market rally will continue. The market is very hyper-focused on data points.”
Williams does not believe the 2% target will be hit by the northern hemisphere summer.
“I think at some point the markets will realise, ‘oh we can’t get to 2%,” and then the markets probably do sell off on that. I think maybe in short term [the stocks go] up and then in the second quarter, they go back down as people realise that 2% is not realistic,” Williams told MarketWatch.
Here’s what we saw (source Commsec):
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