ASX set to rise as financial giants drive Wall Street higher

Reports on the economy on Tuesday came in mixed. One said that sales at U.S. retailers grew by less last month than economists expected, marking a slowdown from May’s growth. That could indicate a tiring consumer, whose strong spending has so far been one of the main bulwarks keeping the economy out of a recession.

But economists said underlying sales trends, which exclude automobiles, gasoline and other items, were stronger than expected in June.

A separate report said US industrial production contracted again last month. That was a surprise to economists, who had been forecasting a flat reading.

Altogether the data seemed to reinforce the heavy bet among traders that the Federal Reserve will raise its federal funds rate at its meeting next week, but that could be the final hike of this cycle.

High rates undercut inflation by bluntly slowing the entire economy and dragging downward on prices for stocks and other investments.

If the Fed does follows through on expectations next week and raises the federal funds rate to a range of 5.25 per cent to 5.50 per cent, it will be at its highest level since 2001. That would be up from its record low of nearly zero early last year.

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But inflation has been slowing over the last year, and hopes are high on Wall Street that it will continue cooling enough to get the Fed to stop raising rates and perhaps begin cutting them next year.

Economic data broadly has been on the upswing recently, and Goldman Sachs economist Spencer Hill sees it helping growth remain “near the top end of the range we view as the sweet spot for rebalancing the labour market without a recession.”

Outside of earnings, technology giant Microsoft jumped 5.6 per cent after announcing the pricing for some artificial-intelligence services. It will charge $30 per user per month for its Microsoft 365 Copilot, which Wedbush analyst Dan Ives called a “flex-the-muscles move.”

A frenzy on Wall Street around AI has helped a select group of stocks surge this year on hopes that it will drive tremendous growth in profits and herald a revolution for the global economy. Besides Microsoft’s 52 per cent gain for the year, Nvidia has tripled.

Treasury yields bounced around following Tuesday’s economic reports but remained below where they were a day before.

The yield on the 10-year Treasury fell to 3.78 per cent from 3.81 per cent late Monday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.77 per cent from 4.75 per cent.

In markets abroad, stocks rose modestly in Europe and were mixed in Asia. Hong Kong’s Hang Seng tumbled 2.1 per cent, while Japan’s Nikkei 225 added 0.3 per cent.