Surging US dollar pushes risk into emerging markets: ASX set to rise

US equities closed higher in Friday trading, fractionally off their best levels. Stocks rallied in response to a new round of bank earnings and promising economic data as fears of a 100 basis point rate hike from the Federal Reserve subsided. The Dow Jones Industrial Average popped 658.09 points, or 2.15 per cent, to settle at 31,288.26. The S&P 500 jumped 1.92 per cent to 3,863.16, and the Nasdaq Composite bounced 1.79 per cent to 11,452.42. Despite Friday’s rally, all the major averages closed out the week with losses.

A new round of bank results from Wells Fargo and Citigroup offered further insight into the state of the economy. Wells Fargo popped about 6.2 per cent even as quarterly profits declined 48 per cent and the bank set aside funds for bad loans. Citigroup soared 13.2 per cent as it beat estimates and benefited from a rising rate environment.

Along with fresh bank earnings, encouraging US economic data was in focus today. June retail sales and preliminary July consumer sentiment was above market expectations.

Friday’s results motivated a broad-based rally across the S&P 500, with all major sectors ending the session in positive territory. Financials jumped 3.5 per cent boosted by surging bank shares, while the health care sector bounced about 2.5 per cent following strong earnings results from UnitedHealth.

Battered tech stocks also jumped on Friday.

Meta Platforms gained 4.2 per cent, Salesforce 3.9 per cent and Amazon 2.6 per cent. Netflix soared 8.2 per cent.

UnitedHealth, JPMorgan Chase and American Express led the Dow’s recovery, rising about 5 per cent each.

The coming week will be another five days packed full with a long list of issues for investors to consider — US earnings, global inflation, jobs, economic growth and more central bank decisions.

Four US tech giants — Netflix, Tesla, Snap and Twitter — are among the first big week of the US’s June quarter reporting season, and they could very well set the tone for the season.

June quarter earnings are forecast to have risen by 5.1 per cent, according to FactSet, while the actual rise was 4.2 per cent as of last Friday, after 7 per cent of S&P 500 companies have already reported. During the coming week, 73 S&P 500 companies (including seven Dow 30 components) are due to report results for the second quarter.

In currency news, the USD dollar’s strong recent appreciation has attracted very little global attention. The US dollar has been on a major surge against major global currencies in the past year, recently hitting levels not seen in 20 years. In short, continued US dollar strength could complicate the outlook for the economy and markets. The risks are particularly acute for those developing countries already facing the clear and present dangers of crises over the economy, energy, food and debt. The recent performance of emerging markets performance vs the US dollar only highlights the risk. The risk is that multiplying country cases of economic and financial instability can merge into a bigger, more dangerous combination of damaged global growth, debt defaults, and social, political and geopolitical instability.

One Australian dollar has strengthened slightly compared to the US dollar on Friday, buying 67.94 US cents.

Gold prices eased on Friday and posted its fifth straight weekly loss, as expectations of a sizeable rate hike by the US Federal Reserve powered the dollar and eroded bullion’s appeal. Spot gold firmed overnight, but lost about 2 per cent this week. Silver was up $0.37 or 2.02 per cent to US$18.59 an ounce. Iron ore futures are pointing to a 0.7 per cent rise.

A rout in the copper market deepened on Friday, with the price of the world’s most important industrial metal sliding below $7,000 a tonne for the first time since November 2020 as recession fears gripped markets. The benchmark copper contract on the London Metal Exchange slipped 1.6 per cent lower as slowdown concerns intensified after weak economic data from China. The drop put copper on course for its worst weekly loss since the depths of the coronavirus pandemic in March 2020.

Oil prices gained 2.5 per cent on Friday after a US official told Reuters that an immediate Saudi oil output boost was not expected, and as investors question whether OPEC has the room to significantly ramp up crude production.

The SPI futures are pointing to a 0.9 per cent gain on the ASX this morning.

In Australia this week, the minutes from the RBA’s last meeting are out tomorrow and a speech by Governor Lowe on Wednesday are likely to reiterate the RBA’s upbeat view of the economy. This week also sees the release of some more production and sales reports from resource groups. The most important will be the full financial year data on production and sales from BHP tomorrow. 

Woodside and Santos could release their June quarter and half year figures this week as well. The sales figures will be huge.

Figures around the globe

US markets closed higher. The Dow Jones gained 2.2 per cent to 31,288, the S&P 500 added 1.9 per cent to 3,863 and the Nasdaq closed 1.8 per cent higher at 11,452.

Across the Atlantic, European markets closed higher. Paris added 2 per cent, Frankfurt gained 2.8 per cent and London’s FTSE closed 1.7 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei added 0.5 per cent, Hong Kong’s Hang Seng lost 2.2 per cent and China’s Shanghai Composite closed 1.6 per cent lower.

On Friday, the Australian sharemarket dropped 0.7 per cent or 45 points to 6,606.

Ex-dividends

There are two companies set to trade without the right to a dividend today.

BNK Banking Corporation (ASX:BBC) is paying 34 cents fully franked.
Turners Automotive Group (ASX:TRA) is paying 6.35 cents 85% franked.

Dividends payable

There are a number of companies set to pay eligible shareholders today, including:

Betashares Australian High Interest Cash ETF (ASX:AAA)
Betashares Nasdaq 100 ETF (ASX:NDQ)
BetaShares Crude Oil Index ETF – Currency Hedged (Synthetic) (ASX:OOO)
BetaShares Gold Bullion ETF – Currency Hedged (ASX:QAU)
BetaShares Australian Financials Sector ETF (ASX:QFN)
Betashares FTSE Rafi Australia 200 ETF (ASX:QOZ)
BetaShares Australian Resources Sector ETF (ASX:QRE)
BetaShares S&P 500 Equal Weight ETF (ASX:QUS)
Vanguard FTSE Asia Ex-Japan Shares Index ETF (ASX:VAE)
Vanguard Australian Fixed Interest Index ETF (ASX:VAF)
Vanguard Australian Property Securities Index ETF (ASX:VAP)
Vanguard Australian Shares Index ETF (ASX:VAS)
Vanguard International Credit Securities Index (Hedged) ETF (ASX:VCF)
Vanguard FTSE Europe Shares ETF (ASX:VEQ)
Vanguard Australian Government Bond Index ETF (ASX:VGB)
Vanguard FTSE Emerging Markets Shares ETF AUD (ASX:VGE)
Vanguard MSCI Index International Shares ETF (ASX:VGS)
Vanguard Australian Shares High Yield ETF (ASX:VHY)
Vanguard International Fixed Interest (Hedged) ETF (ASX:VIF)
Vanguard MSCI Australian Large Companies Indxe ETF (ASX:VLC)
Vanguard MSCI Australian Small Companies Index ETF (ASX:VSO)

IPOs

There is one company set to make its debut on the ASX today. Keep an eye out for Sarytogan Graphite (ASX:SGA), which raised $8.5 million at 20 cents a share.

Commodities

Iron ore is trading 3.6 per cent lower at US$96.60 a tonne.

Iron ore futures are pointing to a 0.7 per cent rise.

Gold lost $2.20 or 0.13 per cent to US$1703.60 an ounce.

Silver was up $0.37 or 2.02 per cent to US$18.59 an ounce.

Copper gained $2.25 or 0.7 per cent to US$323.40 a pound.

Oil added $1.81 or 1.89 per cent to US$97.59 a barrel.

Currencies

One Australian dollar at 7:10 AM has strengthened slightly compared to the US dollar on Friday, buying 67.94 US cents (Fri: 67.51 US cents), 57.27 Pence Sterling, 94.14 Yen and 67.35 Euro cents.

Over the past 24 hours, Bitcoin fell 0.82 per cent to US$20,968.39.

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.