ASX to inch upwards, CBA to report

• On Wall St: Dow +0.9% S&P 500 +0.8% Nasdaq +0.9%
• In New York: BHP +0.4% Rio +1.5% Atlassian +0.2%
• Tesla +1.9% Alphabet flat Meta -2.7% Apple +1.7%

On Wall Street, earnings were mixed. Pfizer was down 2.7 per cent after the drugmaker’s full-year sales forecast for its COVID-19 vaccine and antiviral pills fell short of estimates. Amgen surged 8.4 per cent after announcing a buyback of up to $US6 billion and forecasting earnings to more than double by 2030.

Facebook-owner Meta Platforms fell 1.6 per cent after billionaire investor Peter Thiel decided to step down from the company’s board, driving a fourth day of losses in the stock after its bleak forecast wiped out billions of dollars in market value last week.

Craig Erlam, senior UK and EMEA market analyst at OANDA, writes that there are signs markets are stabilising in a peaceful start to the week.

“The next 48 hours will be interesting, with the Fed minutes and US inflation data being released,” he writes.

“So much has been priced in at this point - five hikes from the Fed by December - but there’s potential for more. We may not yet have hit the peak as far as rate expectations are concerned and Thursday’s CPI reading is expected to be another shocker.”

JPMorgan Chase & Co. strategists have identified what they say is a near bulletproof indicator to strengthen their argument that stock markets are poised to rally.

The buy signal is triggered when the Cboe Volatility Index (VIX) rises by more than 50 per cent of its 1-month moving average, which it last did Jan. 25, according to the strategists led by Mislav Matejka.

“We believe that equities still offer upside, and that the cycle is far from over,” the London-based strategists wrote in a Feb. 7 note. In addition to the VIX signal they look for more gains in earnings, a bottoming in Chinese activity and say investor sentiment has become too negative of late.

Data show the VIX signal has been triggered 21 times since 1990, with the S&P 500 Index gaining an average 9 per cent in the six months afterwards. Prior to January, the last time the indicator flashed was in November, since when stocks have fallen globally. Markets have remained choppy this week.

Today’s agenda

Local: WBC-MI consumer confidence February

Market highlights

ASX futures up 3 points or 0.04 per cent to 7087 near 5.39am AEDT

• AUD +0.1% to 71.33 US cents
• Bitcoin on bitstamp.net -1.5% to $US43,239.49 near 5.31am AEDT
• On Wall St: Dow +0.9% S&P 500 +0.8% Nasdaq +0.9%
• In New York: BHP +0.4% Rio +1.5% Atlassian +0.2%
• Tesla +1.9% Alphabet flat Meta -2.7% Apple +1.7%
• Stoxx 50 +0.2% FTSE -0.1% DAX +0.2% CAC +0.3%
• Spot gold +0.4% to $US1,827.23 /oz at 1.36pm New York time
• Brent crude -1.9% to $US90.93 a barrel
• US oil -1.8% to $US89.65 a barrel
• Iron ore +1.1% $US128.94
• 2-year yield: US 1.33% Australia 1.05%
• 5-year yield: US 1.80% Australia 1.81%
• 10-year yield: US 1.96% Australia 2.12% Germany 0.26%
• US prices as of 1.37pm in New York

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United States

US indexes climbed, boosted by Apple and Microsoft. After spending most of the morning session in the red, the benchmark S&P 500 and the tech-heavy Nasdaq reversed course, powered by Apple, Microsoft and Amazon.com Inc , which gained between 1.5% and 2 per cent.

Meanwhile, the S&P 500 banking index jumped 1.7 per cent as the benchmark 10-year US Treasury yield hit its highest level since November 2019 amid growing expectations that the US Federal Reserve will start tightening monetary policy.

Shares of Bank of America Corp, JPMorgan Chase & Co and Wells Fargo gained about 2 per cent each.

US consumer prices data, set to be released on Thursday, is forecast at a four-decade high of 7.3 per cent. The numbers follow strong US labor data last week that raised investor concerns that the Fed will tighten rates faster than thought.

“We’ve got a rising interest rate environment which we haven’t seen since 2018 and there are a lot of investors in high-growth names that continue to see weakness,” said Dennis Dick, a trader at Bright Trading LLC in Las Vegas.

“You’re going to see money rotate to lower multiple names and more value-oriented market.”

Peloton gained 32.6 per cent despite slashing its revenue forecast as the exercise bike maker said it would replace its chief executive officer and cut jobs in a bid to revive sagging sales It plans to lay off 2,800 people and remove chief executive John Foley as part of a corporate overhaul meant to “right-size” its operations.

Europe

London stocks closed lower on Tuesday as an early bounce in energy major BP faded with sliding oil prices, while online supermarket Ocado tumbled following bleak earnings forecast.

After gaining as much as 0.7 per cent earlier in the session, the UK’s blue-chip FTSE 100 slipped 0.1 per cent, and midcap stocks also ended the session 0.1 per cent lower.

Shares in BP fell 2.4 per cent after hitting their strongest since March 2020 earlier in the session following results that showed its highest profit in eight years in 2021.

“An early bump to its share price couldn’t be sustained, in part because the price of a barrel of Brent Crude slipped back a touch,” said Danni Hewson, financial analyst at AJ Bell.

Rival Shell dropped 3.2 per cent, tracking weakness in oil prices that shed about 3 per cent before the resumption of US-Iran talks, which could revive an international nuclear agreement and allow more oil exports from the OPEC producer.

Asia

Asian shares reversed early gains, with investors in Chinese stocks unsettled by US moves against 33 Chinese entities, with markets otherwise waiting for US inflation data that could influence how fast the Federal Reserve raises interest rates.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.3 per cent to 612.3 after rising to 617.7, the highest since January 25. The benchmark is up nearly 3 per cent from a more than one-year low of 595.99 struck on Jan 27.

“Much of investors’ concern is focused on the five Fed increases that markets are pricing in for 2022, and if they won’t be sufficient to contain inflation,” Seema Shah, chief strategist at Principal Global Investors, said in a note.

“Yet, the Fed’s urgency to tighten should soon ease as the most acute economic price pressures start fading. Furthermore, while US growth has likely peaked, a recession isn’t in the cards,” she said.

Currencies

Treasuries extended declines, stoked by expectations for aggressive interest-rate hikes around the globe. Yields rose on Tuesday, with the rate on the US 30-year bond hitting the highest since June. Italian debt is among the laggards in Europe as money markets price the end of negative deposit rates by December, even after European Central Bank President Christine Lagarde said any adjustment to policy will be “gradual.”

Government bonds worldwide are extending declines after the worst six months in five years, a Bloomberg index showed. Meanwhile, the pool of negative-yielding debt shrank to a six-year low, after nearly $US3 trillion was wiped out in just two days last week.

The dollar strengthened and the euro weakened in sideways trade after European Central Bank President Christine Lagarde strived to keep expectations of rising interest rate hikes at bay that has sent bond markets into a tizzy.

The currency market has broadly traded little changed as traders and investors wait for US consumer price data on Thursday. The dollar index rose 0.217 per cent, with the euro down 0.23 per cent to $US1.1416. “It’s all about what’s going on in the debt market,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“For the second day in a row the two-year German yield is softer, and that stops a nine-day increase. It had to do with Lagarde’s pushback yesterday.”

Commodities

Aluminum surged to a 13-year high in London as booming demand and a swath of smelter closures from China to Europe brings the risk of shortages of the crucial industrial metal.

Prices rose as much as 3.3 per cent to $US3,236 a ton on the London Metal Exchange, surpassing a peak in October to reach the highest since 2008. Aluminum is the best performer on the LME this year, and the next target for bullish investors who’ve been drawn into the rapidly tightening market is an all-time high above $US3,380 a ton.

Oil fell sharply as traders weighed the risks to the market’s recent rally, including a potential de-escalation in tension over Ukraine and the resumption of Iran nuclear talks.

Futures in New York declined as much as 2.5 per cent. The crisis over Ukraine has contributed to surging prices of oil, natural gas and metals in recent weeks. Oil’s drop on Tuesday also came after Russia’s chief nuclear negotiator Mikhail Ulyanov told the Moscow newspaper Kommersant that talks to revive the Iranian nuclear accord are at the finish line with a final document on the table.

“There’s a lot of uncertainty,” BP boss Bernard Looney said in a Bloomberg TV interview. “We’ve got what’s going to happen with Iran, we’ve got what’s going to happen with the shale response in North America, we’ve got concerns in Libya.”

Australian sharemarket

Travel stocks surged for a second day anticipating the relaxation of Australia’s borders to the global tourism industry, leading the sharemarket to a gain of 1.1 per cent.

The S&P/ASX 200 index added 75.9 points to 7186.7; the All Ordinaries rose 1 per cent to 7489.

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