Healthcare companies, wage data lift ASX after Wall Street gain

Wall Street drifted higher ahead of a week of reports showing how strong US shoppers remain, amid hopes their spending can keep the economy out of a recession.

The S&P 500 added 0.6 per cent, though slightly more stocks fell than rose within the index. The Dow Jones edged up by 0.1 per cent in a quiet day of trading. The Nasdaq composite gained 1.1 per cent. The Australian sharemarket is set for a flat start at the open. The ASX lost 0.9 per cent on Monday.

Wall Street drifted higher to kick off the week.Credit: AP

US Steel jumped to one of the market’s bigger gains, up 36.8 per cent. It said over the weekend that it rejected a buyout offer from Cleveland-Cliffs and that it’s heard multiple offers.

Cleveland-Cliffs rose 8.8 per cent after it said it offered more than $US7 billion ($10.8 billion) in cash and stock for the steelmaker and that it’s ready to move on the offer immediately.

On the losing end of Wall Street was Nikola, which sank 6.7 per cent. The zero-emission truck company recalled more than 200 of its electric vehicles after an investigation indicated a problem with a component in the battery pack could be the cause of a prior fire. It earlier suggested foul play could be at play in the truck fire at its headquarters.

Across the rest of the market, trading was relatively quiet. The S&P 500 has retrenched by 2.2 per cent in August after soaring 19.5 per cent through the first seven months of the year. Critics have been saying a pullback was due, arguing Wall Street too quickly and forcefully latched onto the belief that inflation would continue to cool and the economy would avoid a recession.

A bulwark keeping the economy afloat has been strong spending by US consumers, which has been propped up by a remarkably resilient job market.

On Tuesday, the US government will give the latest monthly update on sales at retailers across the country. Economists say it’s one of the week’s most important reports, and they expect it to show growth accelerated to 0.4 per cent in July from 0.2 per cent in June.

Several big retailers are also on the schedule this week to show how much profit they made in the latest quarter. Home Depot, Target, TJX and Walmart will all be reporting this week, as earnings reporting season for the spring hits its tail end.

Inflation has been moderating since hitting a peak a year ago, but it remains high and is denting Americans of all incomes.

Conditions may be getting tougher in upcoming months, as rising interest rates make credit-card and other payments more expensive. Student loan payments will also weigh on consumers, and many have been spending down savings they had been built up during the pandemic.

Economists at Deutsche Bank say their expectations for a stumble in consumer spending during the last three months of the year are a reason they’re forecasting a mild recession lasting through the first half of next year. They, though, also say the resilience of US consumers so far has raised the probability of no recession.

The week’s other big economic highlight will be Wednesday’s release of the minutes from the Federal Reserve’s last meeting. At that meeting, the central bank raised its main interest rate to the highest level in more than two decades. It was the Fed’s 11th increase in 17 months as it tries to corral the worst inflation since the 1980s.

The hope on Wall Street is that will prove to be the final hike of this cycle and the next move for the Fed will be to cut rates. That would provide some relief because high rates work to lower inflation by bluntly slowing the entire economy and hurting prices for stocks and other investments.

Traders broadly expect the Fed to hold rates steady at its next meeting in a little more than a month, according to data from CME Group. They also have some bets saying the Fed will begin cutting rates early next year.

That could prove to be too optimistic, according to David Mericle, economist at Goldman Sachs.

He’s forecasting rate cuts could begin in the spring of 2024, from April through June, as the Fed waits for inflation and the pressure pushing upward on it to ease enough. One potential hiccup could be that the Fed does not want rate cuts to boost prices for stocks and other investments too much.

Mericle said he still sees less of a risk of a recession than the market generally.

In the bond market, the yield on the 10-year Treasury rose to 4.19 per cent from 4.16 per cent late Friday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.96 per cent from 4.90 per cent.

In stock markets abroad, indexes were mixed in Europe after mostly falling in Asia.

China’s waning economic recovery remains a focus for many investors, and stocks fell 1.6 per cent in Hong Kong and 0.3 per cent in Shanghai.

AP

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