ASX to open stronger, even as falling tech stocks drag down Wall Street

“Fed Chair Powell was downright hawkish,” said Win Thin and Elias Haddad at Brown Brothers Harriman. “The Fed wants the market to do the tightening for them. Financial conditions remain too loose and so some combination of higher yields, wider spreads, stronger dollar, and lower equities is needed to tighten conditions.”

Shares of Donald Trump’s Trump Media & Technology Group soared to recoup a sliver of the billions in market value it shed in the three weeks since its debut as a public company. United Airlines surged after the carrier forecast better-than-expected profit this quarter, tempering concerns that Boeing aircraft delays and regulatory pressure will put expansion plans at risk.

Meanwhile, President Joe Biden vowed to keep United States Steel Corp American-owned and called for higher tariffs on Chinese steel and aluminum as he sought to woo union workers ahead of November’s election.

American depositary receipts of mining giant BHP – the biggest stock on the Australian market – rose 2.6 per cent in US trading, while Rio’s ADRs climbed 1.7 per cent.

While global equities are facing tactical headwinds, this is just a consolidation phase and stocks are expected to keep rising this year, according to UBS strategists led by Andrew Garthwaite.

They noted positive developments including artificial intelligence pushing productivity and earnings higher, lower warranted equity risk premium, likely falling labour costs and fewer worries on margin pressures.

The equity risk premium for US equities — a measure of the differential between stocks and bonds’ expected returns — is now deep in negative territory, something that hasn’t happened since early 2000s.

While this is not necessarily a negative indicator for the stock market, it all depends on the economic cycle. The lower ERP can be seen as a promise of a future boost in corporate profits, but also that a bubble is in the making.

Fundamentals and technical trends for equity markets still appear supportive, suggesting the recent pullback should prove temporary, according to HSBC strategists led by Max Kettner, who are using the decline to add to their bullish stance.

US corporate earnings are set for a “healthier runway” through 2024 and investors are growing more confident that companies can meet expectations, according to Morgan Stanley strategists.

The market is watching for profits to bottom in the first quarter before sequentially recovering in the second quarter and eventually expanding in the back half of the year,they wrote.

Bloomberg

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.