ASX drops ahead of rate decision; Wall Street edges up

The S&P 500 added 0.2 per cent even though the majority of stocks within it and across Wall Street weakened. The index was coming off its best week of the year, which itself came on the heels of several months of sharp losses.

The Dow Jones rose 0.1 per cent and the Nasdaq composite gained 0.3 per cent.

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The flashpoint for the stock market’s movements in both directions has been what the bond market is doing, and it regressed Monday following its own extreme moves.

The yield on the 10-year Treasury rose to 4.64 per cent. That’s up from 4.57 per cent late on Friday, but it’s still below the perch above 5 per cent that it reached last month, its highest level since 2007. High yields hurt prices for stocks and other investments, while slowing the economy and raising the pressure on the financial system.

This upcoming week looks to have fewer big events on the calendar that could shake financial markets. It’s a slower week for corporate profit reports, with roughly 50 companies in the S&P 500 set to say how much they earned during the summer. That’s down from about 150 a week before.

Constellation Energy rose 6.5 per cent after it reported better results for the latest quarter than analysts expected.

Berkshire Hathaway ‘s Class B stock fell 1.5 per cent after it reported a loss for its latest quarter over the weekend. Much of the loss was because of drops in the value of some of Berkshire Hathaway’s investments on paper. Looking only at its operating profit, Warren Buffett’s company beat analysts’ expectations.

Even more companies than usual in the S&P 500 have been beating Wall Street’s profit forecasts this reporting season. The index looks to be on pace to deliver its first growth in earnings per share in a year.

Trading of WeWork’s stock was halted amid speculation about its financial health. It’s plunged 98.5 per cent this year to less than $US1.

The events with perhaps the most potential to shake markets this upcoming week are speeches on the schedule by officials from the Federal Reserve.

Perhaps more importantly for markets, Fed Chair Jerome Powell also hinted that a swift rise in Treasury yields since the summer — and the tumult that created in financial markets — could act as substitutes for further hikes to rates if they remain “persistent.” That’s because they could be slowing the economy and putting downward pressure on the economy by themselves.

Powell’s comments last week ignited hopes that the Fed may be done hiking interest rates. Traders also increased bets the central bank could begin cutting rates by this upcoming summer. Cuts to rates can act like steroids for financial markets.

Over the last couple of years, Wall Street has built up hopes several times that cuts to interest rates may be on the horizon, only for them to get dashed by Fed officials pledging to keep interest rates high for a long time to ensure inflation goes down.

At the end of this week will come a preliminary report showing how much inflation U.S. households are preparing for. Such inflation expectations have been key for the Fed, which fears too-high expectations could trigger a vicious cycle that keeps inflation high.

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In the oil market, crude prices gained after Saudi Arabia and Russia reiterated their commitment to maintaining oil supply cuts of more than 1 million barrels per day until the end of the year.

A barrel of benchmark US crude rose 31 cents to settle at $US80.82. Brent crude, the international standard, rose 29 cents to $US85.18 per barrel.

In stock markets abroad, indexes were mostly lower in Europe after jumping across much of Asia.

South Korean stocks leaped 5.7 per cent after the government restored a ban to prevent investors from betting on stock prices will fall by borrowing shares and selling them.

Japan’s Nikkei 225 index gained 2.4 per cent, and Hong Kong’s Hang Seng jumped 1.7 per cent.

With AP

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