Global optimism lifts the ASX
Australian shares are almost at the cusp of becoming record-high as the global markets pierce further into positive territory. ASX200 futures shot up 27 points or 0.31% this morning, perhaps forecasting a strong session. Should American markets manage to close higher today, especially for the S&P 500 and Nasdaq, it will just be another sign of a bullish market.
This renewed risk appetite is due to strong second-quarter earnings, with expectations that the inflation data will be stable. Price increases in commodities such as copper and gold have also played their part in strengthening sentiment across both Australian and global markets.
Why are global markets rallying now?
The United States S&P500 was up 0.27% to its record closing of 6,280 in the overnight session, with the Nasdaq also going up 0.09% to 20,631. The Dow Jones Industrial Average was up 0.43%, closing at 44,651. These record closes mark a strong recovery from the volatilities experienced earlier this year.
Key drivers include:
- Investor anticipation of solid Q2 earnings from tech and financial giants.
- Diminishing fears of immediate interest rate hikes.
- Easing concerns over political uncertainty and inflation.
Meanwhile, a slow but steady recovery in China’s manufacturing sector has provided reassurance to the commodity-based economies like Australia, strengthening prospects for the ASX.
Could tariff tensions disrupt the rally?
Trade policy issues remain tense despite the bullish forecast. Former US President Donald Trump has announced a 50% tariff on copper, effective from 1 August. The effect of this announcement was to elevate copper prices by 2.48% to US$5.5786 per pound.
The announced tariffs could severely affect trade with Brazil or other exporters. For now, the market reaction remains calm, but some of the analysts are alert against possible retaliation. Trade friction will not increase investor sentiment, especially in the mining and resources sector, which is heavily weighted on the ASX.
What role are commodities playing?
Australia, whose economy depends on commodities, benefits from soaring metal prices worldwide. While copper prices soared, iron ore remained firm, keeping gold prices from rising once again, with inflation fears coming to the forefront.
Some of these movements are as follows:
- Copper: 2.48% up due to tariff talk and supply concerns.
- Gold: Holding near US$2,390 per ounce, supported by safe-haven demand.
- Bitcoin: Rebounded 4.62%, trading at around US$116,184 amid global risk-on sentiment.
The Australian dollar remains steady at 0.6591 against the U.S. dollar, indicating the global investors’ confidence in Australia’s terms of trade.
Which sectors are leading the U.S. market surge?
Sector-wise, U.S. equities broadly rose, though with some industries leading the pack:
- Consumer discretionary: +0.98%, backed by strong spending data and earnings optimism.
- Energy: +0.79%, helped by oil & gas price gains.
- Utilities: +0.78%, defensive buying.
- Financials: +0.64%, as financials prepare for solid earnings.
Technology and communication services slightly underperformed, with mild declines, largely due to profit-taking following their strong run in June.
How are ASX stocks expected to react?
Having a robust showing in U.S. markets and firm commodity prices across the board, Australian stocks appear to be in a position to feed upward. Investors will be keenly eyeing any developments with BHP, Rio Tinto, and Fortescue amid shifts in the copper and iron ore dynamics.
The ASX 200 is just a handful of points away from breaking its April 2024 record of 7,942. With global tailwinds and growing momentum on earnings, it looks more than likely that a new high will be achieved if sentiment remains on the current track.
What are investors watching next?
Though some macro risks remain, such as tariffs and inflation data, investors seem to be positioning for a good earnings season. In the short term, Australian equities, buoyed by the strong mining and banking sectors, appear to be in for some good days.
Looking forward to the coming days, attention will be paid to several key triggers:
- S. CPI data (due Friday): Important to understand inflation trends and hence Fed policy.
- Q2 corporate earnings: Banks, tech, industrials expected to be solid.
- Trade developments: Following Trump’s ludicrous tariff chronicles and trading partners’ possible rejoinders.
- Australian unemployment figures: Key for gauging the next steps of the Reserve Bank of Australia.
Markets will likely remain in flux if inflation prints better than expected or geopolitical flare-ups occur.
Overnight Market Summary– 11 July
Investor Outlook: Cautious Optimism Builds
From an S&P 500 investor viewpoint, the sentiment is cautiously optimistic. It ended the day at a record 6,280 points, up 0.27%, imparting the confidence for Q2 earnings ahead. Alongside that, analysts expect a near 5% earnings growth year-on-year, taking into consideration much consumer spending, strong financials, and technological basis. Bond yields are steady with the U.S. 10-year Treasury at 4.346, putting the inflation expectation in check. Key risk events ahead are July’s CPI and tariff developments. Generally, the outlook for S&P supports a gradual upside, given no disruptions in macro indicators and corporate profitability.
A snapshot of investor sentiment across key areas
Though some macro risks remain, such as tariffs and inflation data, investors seem to be positioning for a good earnings season. In the short term, Australian equities, buoyed by the strong mining and banking sectors, appear to be in for some good days.
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Conclusion
- ASX 200 nears yet another historical high, courtesy of global equity strength and firmer commodity prices.
- Investors follow a cautiously optimistic approach, weighing out tariff risks with earnings growth expectations.
- Inflation and trade data now have the momentum to turn markets sharply in one direction or the other.
Entering the second half of the year, there is positivity in sentiments around markets, yet one cannot afford to be distracted.
