ASX set to open higher ahead of inflation report; Wall Street gains again

The Australian sharemarket is headed for a strong start this morning ahead of the latest inflation report, boosted by Wall Street’s third straight session in the green as traders bet on a cut to interest rates in the world’s largest economy.

ASX futures were up 82 points, or 1 per cent, to 8631 as of 6.29am AEDT following a lacklustre session on Tuesday, where the local bourse swung between narrow gains and losses to finish the day 0.1 per cent higher at 8537.00. The Australian dollar traded at US64.68¢ at 6.41am AEDT.

Investors will be looking for further clues on the outlook for interest rates when the Australian Bureau of Statistics releases the inflation rate for October at 11.30am AEDT. Annual inflation jumped to 3.2 per cent in the September quarter from 2.1 per cent in the three months through June, which was higher than expected, dimming hopes for more rate relief from the Reserve Bank as lower borrowing costs can fuel inflation.

Rate cut hopes sent Wall Street higher for the first session in a row.Credit: Bloomberg

On Wall Street overnight, the S&P 500 rose 0.7 per cent in afternoon trading, as four out of every five stocks within the index climbed. The Dow Jones Industrial Average was up 1.2 per cent, and the Nasdaq composite was 0.4 per cent higher.

The gains for indexes masked some big swings underneath the surface, particularly among stocks linked to the artificial-intelligence industry.

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A report that Meta Platforms is in talks to use Google’s chips sent shares of its parent Alphabet soaring. The stock was up 1.3 per cent after jumping as much as 3.2 per cent, putting it on track to hit a $US4 trillion market capitalisation for the first time. Alphabet has added nearly $US1 trillion ($1.55 trillion) in market value since mid-October, helped by Warren Buffett taking a $US4.9 billion stake during the third quarter and broader Wall Street enthusiasm for its recently released Gemini AI model.

Rival chip companies dropped sharply after the report. Nvidia sank 3.9 per cent and was the heaviest weight on the S&P 500 by far, while Advanced Micro Devices dropped 6.9 per cent.

Chinese e-commerce giant Alibaba, meanwhile, saw its stock that trades in the United States fall 2.1 per cent after losing an early gain. It reported stronger revenue than analysts expected for the latest quarter thanks in part to the AI boom, but its overall profit fell short of forecasts.

Apple rose 0.7 per cent amid a prediction it will retake its crown as the world’s largest smartphone maker from Samsung for the first time in more than a decade, lifted by the successful debut of its iPhone 17 models and a rush of consumers upgrading devices, according to Counterpoint Research The company is also benefiting from a cooling of US-China trade tensions and a depreciating US dollar that has boosted purchases in emerging markets, said Counterpoint Research.

Mixed profit reports also caused big swings for several retailers.

Abercrombie & Fitch soared 35.1 per cent after the apparel seller reported a stronger profit for the latest quarter than analysts expected. It also raised the bottom end of its forecasted range for revenue and profit over the full year. Kohl’s surged 34.9 per cent after reporting a profit for the latest quarter when analysts were expecting a loss.

Fed chair Jerome ‘Powell doesn’t need to be the Grinch that stole Christmas.’

Helping to keep the overall market calm were hopes that the Federal Reserve will cut its main interest rate at its next meeting in December. The Fed has already cut rates twice this year in hopes of shoring up a slowing economy, and lower interest rates can cover up a lot of sins in financial markets, including prices going too high.

A raft of data on the US economy left traders betting on a nearly 83 per cent probability that the Fed will cut in December, according to data from CME Group. That’s roughly the same as a day before and up sharply from the coin flip’s chance seen a week ago.

One report said that shoppers bought less at US retailers in September than economists expected. Another said confidence among US consumers worsened by more than economists expected in another potentially signal that the economy could use lower interest rates.

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A third report, meanwhile, said that inflation at the wholesale level was a touch worse in September than economists expected, but a closely tracked underlying trend was slightly better. That’s important because lower interest rates can make inflation worse, and still-high inflation is the main deterrent that could push the Fed to hold off on more cuts.

After taking all the data together, several economists suggested the Fed and its chair, Jerome Powell, could be leaning toward cutting rates on December 10.

“Taking a pause on rate cuts would probably do more damage to sentiment than a cut would help,” according to Brian Jacobsen, chief economist at Annex Wealth Management, who also said “Powell doesn’t need to be the Grinch that stole Christmas.”

In the bond market, the yield on the 10-year Treasury eased to 4 per cent from 4.04 per cent late on Monday.

Easier interest rates can help stocks of smaller companies in particular, because of the need for many of them to borrow to grow. The Russell 2000 index of the smallest US stocks rose 1.9 per cent to lead the market.

In other international markets, indexes rose modestly across much of Europe and Asia.

with AP, Bloomberg

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