ASX set to rise as Wall Street gains in busy earnings week; gold declines

The Australian sharemarket is set to open stronger this morning after US stocks rebounded after a $US2 trillion ($3.1 trillion) selloff as worries over a wider Middle East conflict eased, boosting stocks and pressuring gold and oil prices.

ASX futures rose 19 points, or 0.25 per cent, to 7693 as of 6.59am AEST. On Wall Street, the S&P 500 gained 0.9 per cent to top 5,000 again in its busiest week for first-quarter earnings, the Dow Jones Industrial Average rose 0.7 per cent and the Nasdaq Composite added 1.1 per cent, with investors hanging their hopes on whether big tech’s results will meet the lofty expectations.

In a reversal of last week’s “risk off” mood, spot gold lost 2.7 per cent as investors emerged from their safe-haven bets, poised for its biggest one-day drop since June 2022.

Investors have taken cautious positions on Fridays in recent weeks, fearing an escalation in the conflict in the Middle East over the weekend when markets are closed and they are unable to trade.

“It seems neither Israel nor Iran want an escalation in the crisis in the Middle East,” said Kazuo Kamitani, a strategist at Nomura Securities. “With a subsequent strike from either side not looking like it’s coming, investor concerns have eased somewhat.”

But expectations of Federal Reserve interest rate cuts and concerns about chip sector earnings will continue to keep investors on their toes, he said. Artificial intelligence chipmaker Nvidia led gains in big tech, jumping 4.4 per cent. Apple also rose after the iPhone maker was named a top pick for 2024 at Bank of America on optimism over its upcoming results.

About 180 S&P 500 companies — more than 40 per cent of its market capitalisation — are due to report their results this week. The biggest expectations are for the “Magnificent Seven” megacaps, whose profits are forecast to rise nearly 40 per cent from a year ago, according to Bloomberg Intelligence. Microsoft, Google owner Alphabet, Facebook and Instagram parent Meta Platforms and electric carmaker Tesla are all reporting results this week.

“Just beating consensus estimates for earnings won’t be enough,” said Matt Maley at Miller Tabak + Co. “We’re going to have to see much better guidance from Corporate America if the stock market is going to resume its advance.”

Equity strategists at Wall Street’s top banks are split on whether companies can deliver on robust earnings forecasts. While Morgan Stanley’s Michael Wilson said he expects profit growth to improve as the economy strengthens, his counterpart at JPMorgan Chase, Mislav Matejka, argues that hot inflation, a stronger US dollar and geopolitical tensions are clouding the outlook.