ASX edges higher, oil rises; Fed meeting in focus

The Australian sharemarket has opened higher while oil prices have advanced in early Asian trade, regaining most of their losses over the weekend.

The S&P/ASX 200 was up 7.5 points, or 0.1 per cent, to 8748.7 in early trade. The Australian dollar was trading at US71.75¢.

On Wall Street on Friday, the S&P 500 climbed 0.9 per cent and snapped a four-day losing streak, its longest since June. The Dow Jones Industrial Average jumped 509 points, or 1 per cent, and the Nasdaq composite rose 1 per cent.

They got help from a pullback in oil prices, which had jumped to their highest levels since May because of the ongoing war with Iran. The price for a barrel of Brent crude, the international standard, fell 2.8 per cent to settle at $US104.61 after getting near $US110 overnight.

That took a bit of pressure off inflation, which remains stubbornly high. A report on Friday showed that US consumers had to pay prices for gasoline, food and other costs of living that were 3.4 per cent higher last month than a year earlier.

While still high, that was close to what economists expected and what Wall Street was prepared for. The data also strengthened expectations among traders that the Federal Reserve will feel compelled to hike its main interest rate at its meeting this week.

Such moves are the typical way the Fed tries to rein in high inflation, and they work by filtering through the bond market, making it more expensive for everyone to borrow money, slowing the economy and hopefully removing fuel for further inflation.

The rising expectations for an upcoming hike to rates drove up the yield of the two-year Treasury, which moves with guesses for upcoming Fed action, to 4.62 per cent from 4.56 per cent late Thursday.

Longer-term Treasury yields held steadier, though. That could be a signal that investors in the bond market see upcoming hikes by the Fed as helping to keep control of inflation over the longer term. The yield on the 10-year Treasury rose more modestly to 4.97 per cent from 4.95 per cent late Thursday, while the 30-year yield eased to 5.36 per cent from 5.37 per cent.

Economists say hikes could quiet questions about the Fed’s commitment to keeping inflation under control. Worries had risen earlier in the summer about its credibility and whether it would do what’s needed to bring inflation down, even if it causes pain for the economy in the near term.

Federal Reserve Chairman Kevin Warsh has been adamant about not giving hints about where the Fed may take interest rates, though he did calm some concerns among investors at a speech late last month. President Donald Trump, meanwhile, has been pushing for interest rates to go lower rather than higher.

“Symbolism can trump substance, even when it comes to monetary policy,” according to Brian Jacobsen, chief economic strategist at Annex Wealth Management.

It’s all coming at a moment when confidence among Americans continues to sour. A preliminary report from the University of Michigan on Friday said US consumer sentiment is falling, with declines for both Democrats and Republicans.

Their expectations for inflation coming in the year ahead jumped to 4.6 per cent from 4 per cent last month. That’s the highest reading since June, and it’s concerning for the Fed and for economists because it can trigger a vicious cycle of behaviour that worsens inflation.

On Wall Street, Kroger rose 2.7 per cent after the grocer reported a stronger profit for the latest quarter than analysts expected. It also held firm on its forecast for profit over the fiscal year, even though it trimmed its forecast for an important underlying measure of revenue growth.

ACV Auctions, whose digital marketplace connects wholesale buyers and sellers of vehicles, soared 44.2 per cent after Copart said it would pay $US10.50 in cash for each of the company’s shares. Copart, whose online vehicle auctions sold more than 4 million units in the last year, fell 2.6 per cent.

An early jump for Oracle faded as trading progressed after the tech giant reported stronger profit and revenue for the latest quarter than analysts expected. After initially leaping 8.5 per cent, its stock swiveled between gains and losses and finished with a loss of 1.7 per cent.

Stocks closely tied to the artificial-intelligence industry broadly became shaky this summer on worries that the AI frenzy may have sent prices too high.

All told, the S&P 500 rose 65.28 points to 7,656.98. The Dow Jones Industrial Average added 509.19 to 52,573.29, and the Nasdaq composite climbed 251.31 to 26,333.04.

In stock markets abroad, indexes rose in Europe as oil prices eased. London’s FTSE 100 added 0.4 per cent after a report said the U.K. economy was stronger in July than economists expected.

Stock markets were weaker in Asia, where Japan’s Nikkei 225 lost 1.9 per cent and South Korea’s Kospi fell 1.8 per cent.

AP

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