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US equities were higher in Friday trading, finishing near best levels coming after the index capped its worst first-half performance since 1970 yesterday.
A late-day rebound in stocks was exacerbated by low volume ahead of Monday's 4th of July US holiday.
Since the Federal Reserve raised rates by three-quarters of a point in mid-June, economists across Wall Street have rushed to change their recession calls.
Accelerated monetary policy tightening has doubled recession odds, says Morgan Stanley this week, noting that most economic models now suggest that the probability of a recession during the next 12 months has doubled to over 50 per cent. The bond market has started to reflect that probability, with Treasury yields slipping as investors turn to safe havens.
Ironically since the Fed’s June rate hike, the S&P 500 has risen around 3 per cent. And analysts are still predicting double-digit earnings growth for the rest of the year.
Expectations of earnings growth are about 11 per cent year-over-year in both the third and fourth quarters. Most analysts are bullish on consumer sectors, even as sentiment deteriorates, inflation erodes purchasing power, and the cost of credit rises. Wall Street is still predicting a 27 per cent year-over-year rise in earnings across the consumer discretionary sector in the third quarter; those earnings fell 12 per cent in the first quarter. It seems like analysts earnings estimates aren’t reflecting the macro reality -- suggesting more potential downside to equity markets.
The best-performing sector overnight was consumer discretionary with strong gains in the home building and real estate sectors.
Of note the market is seeing more SPACs collapses -- special purpose acquisition company -- with at least four SPAC mergers called off during the week. An index that tracks companies that went public via SPAC has plunged 67 per cent.
In the BNPL sector, Klarna, the Swedish fintech company that wants to help you pay for your online shopping haul in four easy installments, is nearing a fundraising deal that would value it at just $6.5 billion. We say “just” because it was worth $45.6 billion in June 2021. Fintech and e-commerce, the two sectors Klarna straddles, have taken some of the worst licks from the recent market downturn.
WTI crude settled up 2.5 per cent after dropping the prior two sessions.
Copper dropped below $8,000 a tonne for the first time in almost 18 months on Friday as mounting fears of recession weigh on the world’s most important industrial metal. Widely regarded as a gauge of economic activity because of its use in everything from household appliances to electric vehicles, the metal fell as much 3 per cent to $7,959 a tonne, leaving it on course for its fourth consecutive weekly decline.
Other metals also opened the third quarter on a gloomy note, with nickel down 3 per cent and aluminium off 2 per cent despite data that showed a pick-up in factory activity in China, the
world’s biggest consumer of raw materials.
In Australia today the SPI futures are pointing to a 1.5 per cent gain.
On the economic front the market has locked in expectations for a 50 basis-point hike in official rates by the Reserve Bank on Tuesday, with all eyes on the fine print and the subsequent board minutes for the central bank’s thinking on the longer term trajectory of monetary policy.Figures around the globe
US markets closed higher. The Dow Jones rose 1.1 per cent to 31,097, the S&P 500 rose 1.1 per cent to 3,825 and the Nasdaq rose 0.9 per cent to 11,128.
Across the Atlantic, European markets closed mixed. Paris gained 0.1 per cent, Frankfurt gained 0.2 per cent and London’s FTSE was flat.
Asian markets closed lower. Tokyo’s Nikkei fell 1.7 per cent, Hong Kong’s Hang Seng lost 0.6 per cent and China’s Shanghai Composite closed 0.3 per cent lower.
On Friday, the Australian share market dropped 0.4 per cent to 6,540.Dividends payable
There are two companies set to pay eligible shareholders today.
Macquarie Group (ASX:MQG)Commodities
Iron ore is trading 3 per cent lower at US$116.45 a ton.
Iron ore futures are pointing to a 3.2 per cent fall.
Gold has lost $5.80 or 0.3 per cent to US$1,802 an ounce. Silver was down $0.68 or 3.4 per cent to US$19.67 an ounce.
Oil has gained $2.67 or 2.5 per cent to US$108.43 a barrel.Currencies
The Australian dollar at 7:10 AM has weakened compared to last week, buying 68.16 US cents (Fri: 69.04 US cents), 56.34 Pence Sterling, 92.26 Yen and 65.41 Euro cents.