ASX to rise, S&P 500 reaches for another record

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LPL Financial’s Ryan Detrick said the S&P 500 is on track to close at yet another record high; and if it does, it would be the 66th time it has done so this year.

Also bolstering sentiment, US retail sales rose for a third month in October, signalling that consumers at least for now have not let rising prices deter their determination to spend.

“The US holiday shopping season got off to a roaring start,” Scotiabank’s Derek Holt said. “Strong growth in retail sales is baked into the fourth quarter ahead of the start of the holiday shopping season including next week’s US Thanksgiving followed by Black Friday and Cyber Monday sales.”

Holt said fourth-quarter sales are tracking a gain of 11 per cent quarter over quarter in seasonally adjusted terms at an annualised rate for the fourth quarter over the third quarter.

The latest retail data points to an economy “regaining momentum” after the delta wave during the US summer, Amherst Pierpont’s Stephen Stanley said.

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In addition to the retail data, production at US factories rose in October by more than forecast, bouncing back from the effects of Hurricane Ida and suggesting manufacturers are having a better time addressing materials shortages.

The 1.2 per cent increase in manufacturing production followed a 0.7 per cent decline in September, Federal Reserve data showed Tuesday. Total industrial production, which also includes mining and utility output, advanced 1.6 per cent in October.

Today’s agenda

Local: Leading index October, Third quarter wage price index; NZ third quarter PPI

Overseas data: Japan machinery orders September; UK October CPI; Euro zone October CPI final; US October housing starts and building permits, September total net TIC flows

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Market highlights

ASX futures up 38 points or 0.5 per cent to 7447 near 5am AEDT

  • AUD -0.5% to 73.08 US cents
  • Bitcoin on bitstamp.net -5.6% to $US$60,481.52 as of 5.20am AEDT
  • On Wall St at 1.05pm: Dow +0.6% S&P 500 +0.6% Nasdaq +0.7%
  • In New York: BHP -1.6% Rio -1.1% Atlassian +0.6%
  • Tesla +2.7% Microsoft +1.3% Apple +0.8% Walmart -2.9%
  • In Europe: Stoxx 50 +0.4% FTSE -0.3% CAC +0.3% DAX +0.6%
  • Spot gold -0.6% to $US1852.65/oz at 1.04pm New York time
  • Brent crude +0.8% to $US82.67 a barrel
  • US oil +0.3% to $US81.13 a barrel
  • Iron ore +1.1% to $US90.04 a tonne
  • 2-year yield: US 0.52% Australia 0.66%
  • 5-year yield: US 1.26% Australia 1.42%
  • 10-year yield: US 1.53% Australia 1.82% Germany -0.25%
  • US prices as of 1.02pm in New York

From today’s Financial Review

Biden and Xi calm Taiwan row: The US president has urged Beijing to avoid conflict in a historic meeting with his Chinese counterpart that has provided a breakthrough from the usual hostile rhetoric.

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What Biden’s pick for Fed chair means for markets: US President Joe Biden is expected to announce the next head of the US central bank within days. His choice will have major implications for financial markets.

RBA cuts across PM’s rate pitch to voters: Prime Minister Scott Morrison’s warning that interest rates could be higher without the Coalition in power has been hosed down by the Reserve Bank.

United States

A five-day rally in the shares of Rivian Automotive has led the electric-truck startup to more than double in value since last-week’s trading debut, with its market capitalisation now surpassing Volkswagen.

Walmart fell the most in almost nine months after the retail giant signalled that it’s bracing for more pressure from global transportation snarls despite a broadly positive outlook.

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Home Depot surged the most since the early days of the pandemic after posting stronger-than-expected results, a sign that increased North American spending on home improvement continues to stretch through the pandemic.

Peloton Interactive jumped as much as 15 per cent after the fitness company announced plans to sell about $US1 billion of stock, offering relief to investors rattled by a grim forecast earlier this month.

From Apple to Bed Bath & Beyond, US companies have announced plans to buy $US1.06 trillion of their own shares since January, almost triple the level at this time last year. At an average weekly rate of $US22 billion, the pace is poised to surpass the record $US1.11 trillion set in 2018, data compiled by Birinyi Associates and Bloomberg show.

Europe

Some European stock indexes extended their record rally on Tuesday, boosted by shares of Dutch technology investor Prosus and French luxury group Kering.

The pan-European STOXX 600 closed 0.2 per cent higher, while Germany’s DAX, France’s CAC 40, and euro zone shares all rose to new peaks.

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Prosus NV rose 4.2 per cent after forecasting higher profit for the first half of 2022 as it raised $US12.3 billion from selling part of its stake in Tencent in April.

Kering was on top of the CAC 40, gaining 4.4 per cent after its top brand Gucci said it expected 2021 revenues to be in line or higher than their pre-pandemic level. HSBC upgraded the stock to “buy”.

Data showed euro zone gross domestic product (GDP) rose 2.2 per cent quarter-on-quarter in the July-September period, as expected.

“The decent increase in euro-zone GDP in Q3 means that the recovery is now almost complete in most of the region,” said Jessica Hinds, Europe economist at Capital Economics.

Asia

Tehan hopes to woo US back to trade with Indo-Pacific: A digital free trade agreement will be “front and centre” in talks between Dan Tehan and US Commerce Secretary Gina Raimondo on Wednesday.

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Shanghai stocks closed lower on Tuesday, with defence stocks leading the losses.

The blue-chip CSI300 index was unchanged at 4883.32, while the Shanghai Composite Index lost 0.3 per cent to 3521.79 points.

In Hong Kong, the Hang Seng Index rose 1.3 per cent, to 25,713.78, while the China Enterprises Index gained 1.5 per cent, to 9225.81 points.

One of Asia’s oldest hedge funds, LIM Advisors, is picking up distressed bonds of Chinese developers as the fallout from China Evergrande Group deepens.

George Long, the firm’s founder and chief investment officer, said LIM has been snapping up a “little bit” of such debt but is staying away from bonds of Evergrande because of its complex structure with both offshore and onshore securities and risks that can’t be gleaned from the balance sheet.

“We’re looking very closely at buying some other distressed Chinese property companies,” he said, declining to give names. “It’s going be a great opportunity.”

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Currencies

The bond market is misunderstanding the Federal Reserve by building interest-rate increases into the short end of the yield curve starting as early as mid-2022 amid elevated inflation, according to Priya Misra at TD Securities (USA).

“The market is pricing in the first rate hike literally right after when tapering ends,” the firm’s global head of rates strategy said Tuesday in an interview on Bloomberg TV’s Surveillance. “Our view is that there are huge COVID impacts on inflation that are going to start to decelerate. Growth is going to slow, inflation will peak.”

TD doesn’t expect the Fed to raise rates until late 2023. The call runs counter to recent trading in the US Treasury market, where the spread between 2- and 10-year yields narrowed to 97 basis points last week, the tightest since August, with traders pulling forward bets on Fed rate increases.

“It is not obvious to us that the Fed has to turn around and start hiking aggressively,” Misra said. “We actually have the first rate hike much later than when the market is pricing in, a steeper curve, the front end staying a lot more anchored.”

Commodities

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Most main metals fell in London, with aluminum down 3.2 per cent and nickel dropping 0.8 per cent.

For copper, a month after an unprecedented squeeze roiled the market, a short-term spread is back to normal levels as rising exchange inventories relieve the pressure on buyers. The spread between spot and three-month contracts on the London Metal Exchange eased to a $32.50-a-ton premium by Monday’s close. The premium signals that near-term supply is still tight.

The metal was down 1.4 per cent at $US9536 a tonne by 5.12pm on the LME.

Australian sharemarket

The retail stocks set to benefit from Christmas spending boom: Retailers who can pass on higher input costs to consumers and have greater control over their supply chain are best placed to benefit.

AFP raids Sydney EverBlu offices as part of ASIC investigation: The police operation at the broker’s offices has sent shockwaves through the small end of the Australian market.

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ASX drops 0.7pc, dragged lower by energy stocks: Australian shares fell 0.7 per cent on Tuesday, dragged lower by a sell-off in materials and energy stocks.

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