Outlook for the day: Positive. The ASX 200 looks set for record territory after miners and banks outperformed as US investors rotated out of tech stocks.
ASX futures: up 45 points or 0.57%
Overnight themes:
US stocks finished mixed after the first contraction in consumer prices in four years triggered a sharp rotation out of megacap tech stocks into companies better positioned to benefit from future rate cuts.
Small caps, gold miners, property companies, utilities, miners and banks rallied. Tech stocks, treasury yields and the US dollar sank.
The Nasdaq Composite tumbled 1.95% as traders sold Tesla -8.44%, Nvidia -5.57% and other members of the Magnificent Seven group of companies that have led this year's rally. Meta lost 4.11%, Alphabet 2.93%, Microsoft 2.48%, Amazon 2.37% and Apple 2.32%.
The S&P 500 shed 0.79% as declines in growth stocks outweighed gains in more than half of its sectors.
The Dow rallied 0.14%. Almost two-thirds of its component companies logged gains.
The catalyst for the market rotation was news that the consumer price index declined 0.1% last month. The decline in prices was the first since May 2020. Annual headline inflation slowed to 3% from 3.3% in May.
Small caps took wing as traders bet the Federal Reserve will cut rates in September. The Russell 2000 index of small caps jumped 3.57%. Smaller companies have trailled all year, but should in theory benefit from lower rates.
“If there is an area of the market that needs rate cuts, it’s small and medium sized businesses who have suffered the most because of the higher cost of capital” - Peter Boockvar, chief investment officer at Bleakley Financial Group (per CNBC).
Rate-sensitive property and utility companies also saw strong gains. The S&P real estate sector put on 2.66%. Utilities added 1.83%. Also strong were materials +1.42%, industrials +1.26%, energy +1.05% and financials +0.85%.
"What I think investors now believe is that the Fed is ready to start to cut interest rates. And so they are saying, 'That's good enough for me. I don't have to wait for them to actually do it'" - Sam Stovall, chief investment strategist at CFRA Research (per Reuters).
The S&P 500's weakness was concentrated in the sectors dominated by megacaps. Tech lost 2.74%, communication services -2.56% and consume discretionary -1.47%.
Gold miners traded at a two-year high after the yellow metal settled above US$2,400 an ounce for the first time since May. Gold for August delivery rose US$42.20 to US$2,421.90 per ounce. Prices traded as high as US$2,430.40, within touching distance of the all-time high of US$2,454 and settlement high of US$2,428.50. The NYSE Arca Gold Bugs index rallied 2.78% to a level last seen in April 2022.
Iron ore rebounded amid stimulus hopes ahead of next week's Third Plenum, which is expected to lay out the government's plans and policies for the next five to ten years. Benchmark prices in China gained 0.43%. Singapore prices rallied 2.1%.
Key events today:
US wholesale inflation (PPI) - tonight
US preliminary consumer sentiment - tonight
S&P 500: down 44 points or 0.79%
Dow: up 55 points or 0.14%
Nasdaq: down 364 points or 1.95%
Dollar: up 0.12% to 67.6 US cents
Iron ore (Dalian): up 0.43% to US$113.45
Brent crude: up 32 US cents or 0.38% to US$85.40
Gold: up US$42.20 or 1.77% to US$2,421.90
Silver: up 66 US cents or 2.13% to US$31.67
NYSE Arca Gold Bugs: up 2.78%
Bitcoin: up 0.02% to US$57,399
Copper (LME): down 1.29% to US$9,777.50
Nickel (LME): up 0.03% to US$16,830
Global X Lithium & Battery Tech ETF: up 2.2%
Uranium (spot): up 0.44% to US$87
BHP: down 0.55% (US); down 1.1% (UK)
