The ASX is likely to climb in early morning trading, with ASX200 Futures trading up 0.40% or 29 points as of 8:20 AEST this morning.
It was a quiet but buoyant day of trading in the US; the S&P500 finished up 0.9%, just 2% shy of recent highs, while the Nasdaq added 0.61% and the Dow gained a solid 1.16%.
Industrials, Financials, Real Estate and Healthcare served to lift the indexes, dragging Utilities and a lagging Tech sector behind as Apple (NASDAQ:AAPL) shed -1.7% and Tesla (NASDAQ:TSLA) -0.95%.
Central Bank sentiment appears to be shifting in this third quarter, with officials and market analysts predicting just one more interest rate rise for both the US Fed and the Australian RBA this year.
Morgan Stanley (NYSE:NYSE:MS) analysts also warned of a two-fold risk to US markets – the lingering effects of interest rate rises and fiscal tightening, and the threat to equity valuations given the US’s recent credit rating downgrade.
Morgan Stanley equity strategist Michael J Wilson pointed to the knock-on effect of recently sold government bonds on investor sentiment.
"Investors will call into question equity valuations, which were already high before the recent rise in yields," Wilson said in a weekend note, reported by Reuters.
"If fiscal spending must be curtailed due to higher political or funding costs, the unfinished earnings decline that began last year is more likely to resume."
US institutional investors may be restricted from buying Chinese stocks
Chinese stock holdings in BlackRock (NYSE:BLK) funds via Morgan Stanley Capital International indexes have drawn US Congressional scrutiny, potentially heralding wider restrictions of US institutional investment in similar shares.
The committee pointed to investments facilitated in companies the US Government has tied to the Chinese military or human rights abuses, while analysts highlighted the possibility of American capital flowing into the Chinese military complex.
"I'm telling (clients) to expect more and stronger actions prohibiting or making it more difficult to invest in China and greater scrutiny of those investments," said Jo Ritcey-Donohue, an attorney who advises institutional investors, in a Reuters interview.
"As long as all these cross-border tensions are out there, there’ll continue to be pressure on U.S. businesses.”
US-Chinese relations have been frosty at best in recent years, with tensions over Taiwan and America’s support of the Taiwanese government leading to political and military posturing.
A recent G7 summit encapsulated the tension, with attending countries taking a strong stance on countering “attempts to weaponize economic dependencies by forcing G7 members and our partners including small economies to comply and conform”.
While US President Joe Biden said he hoped to see a “thaw” in relations with China, this latest review into American money in Chinese stocks is unlikely to soften attitudes in Beijing.
Commodities and currencies
As is often the case, the US dollar had a mixed performance overnight.
- The Euro rose from US$1.0964 to US$1.1009 and was near US$1.1000 at close.
- The Aussie gained from US$0.6553 to US$0.6585 and was near US$0.6570.
- The Japanese yen eased from 141.82 yen per US dollar to JPY142.56 and was near JPY142.50 at the US close.
Brent fell 1% or US$0.90 to US$85.34 a barrel and US Nymex lost 1.1% or US$0.88 to US$81.94 a barrel.
Base metals followed suit, with copper futures falling 0.8% on a surplus of stock despite forecast supply and grade shortages, and aluminium shedding 0.2%. Iron ore was also down, falling US$0.45 to US$104.73 a tonne on warnings from Goldman Sachs (NYSE:NYSE:GS) that China may cut steel output as traders contend with off-peak demand.
Gold also fell as inflation begins to normalise, losing 0.3% or US$6.10 to US$1,970 an ounce.
On the small cap front
The Small Ords managed a 0.7% lift yesterday, boding well for the many miners on the index ahead of the Diggers conference. The index is down 1.38% for the week but up 3.39% for the month.
Let’s take a look at what they’ve been up to today. You can read more about the following and more throughout the day.