Strength in commodity prices could help support the Australian market at the start of the final trading week of August, as the reporting season draws to a close and attention shifts away from Australian politics and back to the global political stage.
Australian stocks are set to open the week steady, with the ASX 200 futures down one point after a week that saw the S&P/ASX 200 index fall 91.9 points, or 1.5 per cent, to 6247.3.
The benchmark index traded defensively during a week of political uncertainty which culminated with Treasurer Scott Morrison taking the prime ministership from Malcolm Turnbull. Mr Morrison has pledged to bring stability to the government, bring down electricity prices and help drought-stricken regions of the country.
After a turbulent political week, the Australian dollar jumped more than 1 per cent on Friday to trade at US73.29¢.
US markets had a better week than the local market, with the Dow adding 0.47 per cent, the S&P gaining 0.87 per cent, and the Nasdaq increasing 1.66 per cent.
Powell affirms rate hikes
The benchmark S&P 500 stock index on Friday clinched its longest bull-market run, closing above its previous January high, after reassuring comments from Federal Reserve chairman Jerome Powell, who affirmed the US central bank’s current pace of rate hikes.
Speaking at a research symposium in Wyoming, Mr Powell said the Fed’s gradual interest rate hikes were the best way to protect the economic recovery, maintain strong job growth and keep inflation under control. His comments did little to change market expectations of a rate hike in September and perhaps again in December.
Mr Powell said he sees the current path of interest rates as a gradually rising one and that there doesn’t appear to be an “elevated risk of overheating” after discussing inflation trends.
“It was this latter remark that market’s latched onto, interpreted as meaning the FOMC perceives the chances of having to deviate in a hawkish direction from the current policy of gradual tightening as slim,” said NAB currency strategist Ray Attrill.
Confirmation from the People’s Bank of China that it would resume using its “counter-cyclical” factor when calculating the yuan’s daily reference rate was another boost to sentiment, Mr Attrill said, as it acted to restrain market forces that have been driving the currency lower.
The US dollar fell after Mr Powell’s comments, which lifted US materials and energy stocks as oil and metal prices.
The positive sentiment around US miners could linger into the Australian session on Monday and earnings may also bolster the ASX if they follow the pattern of the past few weeks.
“We have continued to see the majority (65 per cent) of results coming in in line with expectations, while the hits and misses were nearly equally weighted,” said Citi’s Karen Jorritsm noting that the August reporting season is now around 90 per cent complete in terms of company market capitalisation.