ASX is set to edge higher, but signs of caution remain

June 22, 2022 - 2 weeks ago
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The Australian share market is poised for more gains after Wall Street shines upon its return from a long weekend break as U.S. stock markets were closed Monday in observance of Juneteenth, which was observed on Sunday.

The Australian share market futures point to a +44 point rise, or +0.7%, to 6,459, while our local currency, the Australian dollar, is currently buying US$0.6966 (as of writing).

U.S. stocks rebounded broadly as investors scooped up shares on Wall Street, with all three major U.S. stock indexes ending up more than +2% after last week logged its biggest weekly percentage decline since March 2020.

At the finishing bell on the New York Stock Exchange (NYSE), the blue-chip Dow Jones Industrial Average slipped rose +641.47, or +2.1%, to 30,530.25.

The broad-based Standard & Poor’s 500 Index gained +89.95 points, or +2.4%, to 3,764.79, while the rich-tech Nasdaq Composite Index added +270.95 points, or +2.5%, to 11,069.30.

On Tuesday, at the Sydney American Chamber of Commerce event, the Reserve Bank of Australia (RBA) Governor Philip Lowe said, “So we don’t see a recession on the horizon, but if the last two years have taught us anything, you can’t rule anything out.”

Dr Lowe also said he did not see a risk of recession in Australia in the coming months.

However, on the degree of monthly interest rate increases, Dr Lowe said the board discussed the options of 25 or 50 basis points at the June meeting.

“The Board is committed to doing what is necessary to ensure that inflation returns to the 2 to 3 per cent target range over time. High inflation damages the economy, reduces the purchasing power of people’s incomes and devalues people’s savings,” Lowe added.

Market traders are likely to remain cautious as they try to assess how far stocks can fall as they weigh risks to the economy, with the U.S. Federal Reserve taking aggressive measures to try to tamp down surging inflation.

Looking ahead, the U.S. Federal Reserve Chair Jerome Powell heads to the U.S. Congress for his semi-annual congressional testimony.

U.S. Fed Powell will need to justify last week’s biggest rate hike since 1994 in front of the Senate Banking Committee this Wednesday and Friday.

The US dollar index (US DXY), which tracks the greenback against a basket of its peers, was -0.28% down to 104.02, while in the bond market, the 10-year US Treasury yield added +1.7% to 3.294%. Yields climb when bond prices decline.

Meanwhile, precious metals were on the negative side as spot gold slid -0.4% to $1,831.55 and silver fell -0.4% to $21.60.

Global oil benchmark Brent crude was trading at $114.60 for a +0.4% increase, while U.S. benchmark West Texas Intermediate (WTI) was at $109.92 — a 0.2% increase.

Iron ore prices rose by +3.2% to US$115.90 a tonne, while cryptocurrencies Bitcoin, the world’s largest cryptocurrency by market value, rose alongside other cryptocurrencies, continuing to claw back some losses after a bruising weekend and ended up with a +0.6% and is trading at US$20,750.00 (as of writing).

Based on the daily technical assessment of the S&P/ASX 200 (XJO), a firmer opening is foreseen, with the intraday resistance seen at 6,565-75, with 6,615 seen above. Reassess from there.

Assessing the downside, the support is observed at 6,505 minor, with 6,470 located beneath. Reassess from there.

Daily outlook on the benchmark S&P/ASX 200

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