ASX set to surge as Wall Street rallies

Parts of the U.S. economy are still red-hot, particularly the jobs market, but some discouraging signals have emerged recently. A report on Friday confirmed sentiment among consumers sank to its lowest point since the University of Michigan began keeping records, hurt in particular by high inflation. Another lowlight this week suggested the U.S. manufacturing and services sectors aren’t as strong as economists thought.

Such weakening data raise worries about the strength of the economy. But they also can be good for financial markets, as paradoxical as that may seem.

They could mean less upward pressure on inflation, which would ultimately mean the Federal Reserve doesn’t have to raise rates so aggressively. And interest rates drive trading for everything from stocks to cryptocurrencies.

“We have seen a cooling off in a lot of areas, certainly. Gasoline purchases are down, housing prices appear to be cooling across the board,” Frederick said. “To me all of this speaks to the fact what the Fed is doing now appears to at least be having some impact. Now, whether or not it’s sufficient to bring inflation down, I don’t think we know yet.”

One nugget in the consumer sentiment report could carry particular weight for markets. It showed consumers’ expectations for inflation over the long run moderated to 3.1per cent from a mid-month reading of 3.3per cent. That’s crucial for the Fed because expectations for higher inflation in the future can trigger buying activity that inflames inflation further in a self-fulfilling, vicious cycle.

Last week, the Fed hiked its key short-term rate by the biggest margin in decades and said another such increases could be coming, though they wouldn’t be common.

Over the last week, investors have been modestly ratcheting back their expectations for how high the Fed will hike interest rates into early next year.

That’s helped yields in the Treasury market recede. The yield on the two-year Treasury, which tends to move with expectations for the Fed’s actions, dropped back to 3.06 per cent from more than 3.40 per cent in the middle of last week.

The yield on the 10-year Treasury, which forms the bedrock for the world’s financial system, rose to 3.13 per cent on Friday from 3.07 per cent late Thursday. But it also has moderated after hitting 3.48 per cent last week.

It started the year just a bit above 1.50 per cent.

A separate economic report on Friday showed sales of new homes unexpectedly accelerated last month. But the trend for housing has largely been lower because it’s at the leading edge of the Fed’s hikes.

More expensive mortgage rates are hurting the industry, and a separate report earlier this week showed sales of previously occupied homes slowed last month.

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Rising mortgage rates pushed LendingTree, the online marketplace that helps people find mortgages and other loans, to warn Friday that it expects to report weaker revenue for the second quarter than earlier forecast. Its stock fell 7.9 per cent.

The vast majority of Wall Street was heading the opposite direction. More than 95 per cent of the stocks in the S&P 500 closed higher.

Travel-related stocks were among the biggest gainers on Friday. Cruise operator Carnival rose 12.4 per cent after it reported weaker results for its most recent quarter than analysts expected, but also said that booking trends are improving. Royal Caribbean jumped 15.8 per cent for the biggest gain in the S&P 500. United Airlines rose 7.5 per cent, while Wynn Resorts climbed 12.1 per cent.

AP

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