ASX set to open higher despite losses on Wall Street after US jobs surprise

The Australian sharemarket is set to open tentatively higher this morning, despite a late sell-off on Wall Street after surprisingly strong US jobs data sparked concerns the Federal Reserve would have to continue its aggressive fight to tame inflation.

ASX futures were up 12 points, or 0.16 per cent, at 7513 over the weekend as investors are gearing up to see if company earnings can live up to the market optimism, which has taken the bourse to a 6.2 per cent gain last month, a record for January. The local earnings season kicks off today with reports from furniture retailer Nick Scali as well as investment company Argo and property trust Dexus Convenience Retail.

The week’s defining event for markets though is set to be Tuesday’s interest rate decision by the RBA, with most economists and traders predicting that Australia’s central bank will raise its cash rate to 3.35 per cent from 3.1 per cent, the highest level since September 2012, following the latest round of rate hikes by the Fed, the European Central Bank and the Bank of England last week. The Commonwealth Bank has highlighted the possibility of a bigger hike to 3.5 per cent.

On Wall Street on Friday, major US stock indexes fell in choppy trading after the job market report, while investors digested a mixed bag of megacap company earnings reports. US job growth accelerated sharply in January, with nonfarm payrolls surging by 517,000 jobs, well above an estimate of 185,000. The unemployment rate hit a more than 53-1/2-year low of 3.4 per cent

Investors have been balancing hopeful signs that the economy could avoid a feared recession against concerns about how long the Fed will keep interest rates high to rein in inflation. The S&P 500 gained earlier this week after more dovish-than-expected comments from Fed Chair Jerome Powell, who acknowledged progress in the fight against inflation.

The jobs report “was an incredible surprise, and it raises a lot of questions about what the Fed is going to do next,” said Kristina Hooper, chief global market strategist at Invesco. “What I think is causing some of the volatility is markets trying to make sense of how the Fed will perceive this.”

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The Dow Jones Industrial Average fell 0.39 per cent to 33,921.78, the S&P 500 lost 0.91 per cent to 4,141.88 and the Nasdaq Composite dropped 1.25 per cent to 12,048.74.

Wall Street’s main indexes have had a solid start to the year as tech and other stocks that struggled last year have rebounded, fuelled by hopes that the Fed’s rate hikes would soon end and the world’s largest economy might be able to navigate a soft landing.