ASX set to jump as US stocks surge; $A leaps

Computershare (down 4.6 per cent), QBE (down 3.9 per cent) and AGL (down 1 per cent) were also among large-cap decliners.

Relief washed over Wall Street, and stocks leaped to one of their best days of the year following a surprisingly encouraging report on inflation.

The S&P 500 jumped 1.9 per cent for its best day since April and hit a two-month high. The Dow Jones Industrial Average rallied 489 points, or 1.4 per cent, while the Nasdaq composite charged 2.4 per cent higher.

Technology and other high-growth stocks tend to get some of the biggest boosts from easier rates, and a 2.3 per cent rise for Amazon and 2.1 per cent lift for Nvidia were two of the strongest forces pushing the S&P 500 upward.

Stocks of smaller companies also got a huge boost, with the Russell 2000 index of small stocks surging 5.4 per cent for its best day in a year. Smaller companies are often seen as more dependent on borrowing cash to grow, which can make them more vulnerable to higher interest rates.

The inflation data helped to buoy Wall Street’s hopes that the Fed may actually pull off the balancing act of slowing the economy and hurting investment prices just enough to grind down inflation, but not so much as to cause a painful recession. That is still not a certainty, though.

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The Fed has yanked its main interest rate to its highest level since 2001, up from virtually zero early last year, in hopes of getting inflation back down to 2 per cent. The moves have already sent shockwaves through the financial system, with stocks still down from their peak in early 2022 and several high-profile US bank failures earlier this year shaking confidence.

Even if it doesn’t hike rates any more, the Fed is likely to keep its main rate high for a while.

Still, the inflation report was immensely encouraging for Wall Street. After the report’s release, Treasury yields in the bond market tumbled immediately as traders flooded into bets that the Fed won’t hike rates again.

Investors also pushed up the expected timetable for the Fed’s first cut to rates, which can act like steroids for financial markets and provide oxygen across the financial system.

“Ain’t no reason to believe the last inflation mile will be the most difficult,” said EY Chief Economist Gregory Daco. “Slower consumer demand, reduced housing rents, lower profit margins, easing wage growth and restrictive monetary policy represent the ideal disinflationary combo heading into 2024.”

The yield on the 10-year Treasury tumbled to 4.44 per cent from 4.64 per cent late on Monday, which is a significant move for the bond market. Just a few weeks ago, the 10-year yield was above 5 per cent and at its highest level since 2007.

Traders now see zero chance of a rate increase at the Fed’s next meeting next month, down from a 14.5 per cent probability a day before, according to data from CME Group.

The prospect of no more rate hikes reverberated across all kinds of financial markets.

The value of the US dollar fell against many other currencies, further slowing its strong run since the summer, while the price of gold rose $US16.30 to settle at $US1966.50 per ounce. Higher rates tend to hurt gold because the metal looks less attractive as an investment when bonds are paying higher yields and gold continues to pay nothing.

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On Wall Street, real-estate stocks and others beaten down particularly hard by higher rates soared to some of the market’s biggest gains.

Bank stocks were also strong on hopes that a halt to rate hikes will mean less pressure on the financial system. Zions Bancorp jumped 8.1 per cent, and Comerica rose 7.8 per cent. Both their stock prices fell sharply earlier this year following the collapses of Silicon Valley Bank and other banks a tier or two below in size of the industry’s behemoths.

Elsewhere on Wall Street, Home Depot rallied 5.4 per cent after reporting stronger profit for the latest quarter than analysts expected.

Target, Walmart and other big retailers will report results later this week. They’re at the tail end of an earnings reporting season that has been better than analysts expected. Companies in the S&P 500 are on track to deliver their first overall growth in earnings in a year, according to FactSet.

With AP

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