Opening Call: The Australian share market is to open lower.
U.S. stocks edged higher even as data showed inflation hit the highest level in nearly four decades last month. The inflation data helped push the yield on the 10-year Treasury down for most of the session before rebounding to 1.75%. The WSJ Dollar Index fell to 89.01, giving a boost to gold prices. U.S. oil prices climbed to their highest settlement in about two months after a larger-than-expected draw in U.S. crude-oil supplies.
Australia’s S&P/ASX 200 climbed 0.7%, led by a rebound in commodity, tech and health stocks. The benchmark jumped more than 1.0% in early trade, building on a positive lead from U.S. equities. It snapped a two-day losing streak despite paring gains and is 0.2% lower so far this week. The energy sector led gains, climbing 3.0% amid higher oil prices. Consumer-staples shares again dragged on the market amid concerns that Covid-19-driven staff shortages are hitting the flow of goods.
U.S. inflation hit its fastest pace since 1982, but stocks took the news in stride. The S&P 500 gained 0.3%, while the Dow Jones Industrial Average added 0.1%. The tech-heavy Nasdaq Composite Index added 0.2%.
Markets have been focused on anything that could shift expectations for the Federal Reserve to begin lifting interest rates as soon as March. “I do think the markets are believing that inflation is on the cusp of peaking,” said Darrell Cronk, chief investment officer for wealth and investment management at Wells Fargo.
Luca Paolini, chief strategist at Pictet Asset Management, said he expected inflation to reach a peak this quarter, but is waiting to see if higher inflation weighs on profits in the coming earnings season.
Gold futures climbed for a fourth straight session, settling at their highest level of the year so far, as the U.S. dollar and Treasury yields declined in the wake of stronger-than-expected U.S. consumer inflation data. “The most important takeaway for gold here is that gold is a rocket ship and inflation is its fuel,” said Peter Spina, president and chief executive officer at GoldSeek.com.
“Now with inflation showing itself to be baked into the system and growing recognition of inflation, gold is going to benefit in a big way. “February gold futures rose 0.5% to settle at $1,827.30 an ounce. Prices for the most-active contract ended at their highest since Dec. 31 and notched a fourth straight session gain, the longest string of gains since a seven-session stretch ended Nov. 12, FactSet data show.
Oil prices reached a two-month high, with U.S. crude inventories posting a decline for a seventh straight week and traders mostly upbeat on the outlook for the economy and oil demand. “Crude prices continue to set new highs for 2022, with prompt benchmarks now near their highest point since November last year,” said Robbie Fraser, global research and analytics manager at Schneider Electric. “The current bullishness is a mixture of crude fundamentals and more macro factors tied to the broader economic outlook.”
Inventory data will “continue to be key through the early weeks of 2022 as the market eyes any signal that balances are improving, and that the market could see a run of more oversupplied conditions,” he said in a note. West Texas Intermediate crude for February delivery rose nearly 1.8% to settle at $82.64 a barrel on the New York Mercantile Exchange. March Brent crude, the global benchmark, climbed 1.1% to $84.67 a barrel on ICE Futures Europe. Prices for both front-month contracts finished the session at their highest since Nov. 9, FactSet data show.
Major currencies were stronger against the US dollar in European and US trade. The Euro rose from lows near US$1.1354 to highs near US$1.1453 and was near US$1.1450 at the US close. The Aussie dollar lifted from lows near US72.00 cents to highs near US72.92cents and was near US72.90 cents at the US close. And the Japanese yen rose firmed from near 115.45 yen per US dollar to JPY114.38 was near JPY114.50 at the US close.
European sharemarkets closed higher on Wednesday. The panEuropean STOXX 600 index rose by 0.7%, with basic resources stocks climbing 3.2% on Chinese stimulus hopes. The German Dax
index added 0.4% and the UK FTSE index gained 0.8%. In London trade, shares in Rio Tinto (+2.8%) and BHP (+4.5%) both lifted.
Earlier Wednesday, Chinese shares advanced, tracking broad gains in other Asia stock markets. The Shanghai Composite Index rose 0.8%, the Shenzhen Composite Index gained 1.4% and the ChiNext Price Index grew 2.6%. Stocks of electric vehicle-related companies were stronger, following recent data showing that EV sales had driven the increase in China’s passenger car sales in 2021. China’s property sector will continue to be watched following the recent attention on Shimao Group, one of the country’s largest developers by contracted sales, and its liquidity position as well as its ability to service debts, IG said.
Hong Kong stocks surged, as the tech sector continued to sustain a rebound driven by attractive valuations and expectations of easing policy risk this year. The benchmark Hang Seng Index rose 2.8%, its largest one-day percentage gain in over three months. The Hang Seng TECH Index jumped 5.0% to its highest close in a month. UOB Kay Hian analyst Chun Sung Oong said the tech recovery has been led by bargain-hunting, thanks to the sector’s low valuations, while the market is also hoping for an improving regulatory landscape in 2022.
Japanese stocks also ended higher, led by gains in energy and tech stocks as the recent rising momentum of government bond yields eases. The Nikkei Stock Average rose 1.9% Covid-19 infection trends and the government’s response are in focus.