Shares lift in wake of US pull-back
Local stocks fell from five-year highs on Friday as investors prepared for the US Federal Reserve to start winding back its stimulus program at an Open Market Committee on Wednesday.
But weak US retail sales figures released late on Friday have made it harder for the Reserve to justify cuts. According to Bloomberg economists, the Reserve will begin tapering its $85 billion monthly bond purchases this week, but only by about $10 billion.
"It is becoming increasingly difficult for the Federal Reserve to justify reducing stimulus next week," Kathy Lien, managing director of FX strategy for BK Asset Management said.
"A slowdown in consumer spending, decline in confidence and sluggish job growth screams of a recovery that is losing momentum. Inflationary pressures are virtually non-existent which means that if the central bank were to consider a policy action, arguments could be made easing and tightening.
Retail sales growth in the US slowed to 0.2 per cent from 0.4 per cent in the month of August, a report showed.
Local investors will also be looking to Tuesday's release of the Reserve Bank's monthly board meeting minutes for any indication on interest rate movement.
On Friday, ANZ economists released an improved outlook for iron ore over the next two years.
The upward price revisions are short term and reflect stronger than expected demand for steel in China so far this year. "Our recent marketing trip to China confirmed a more buoyant steel story," Mark Pervan, global head of commodity strategy, said in a note.
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Economists expect a delay to serious stimulus spending cuts in the world's biggest economy, which has lifted sentiment. Weak US data has made the Federal Reserve less likely to sharply reduce stimulus immediately, supporting a positive start for the Australian sharemarket.
Local stocks retreated as investors prepared for the US Federal Reserve to begin winding back its stimulus program at the Federal Open Market Committee meeting, creating uncertainty that weighed on markets.
US retail sales growth slowed to 0.2% from 0.4% in August. That weaker consumer spending made it harder for the Fed to justify large stimulus cuts, reducing the immediate likelihood of aggressive tapering.
Bloomberg economists expect the Federal Reserve to begin tapering its $85 billion monthly bond purchases, but only by about $10 billion when the program starts to be wound back.
Kathy Lien said it is becoming increasingly difficult for the Fed to justify reducing stimulus next week, noting a slowdown in consumer spending, falling confidence, sluggish job growth and virtually non-existent inflationary pressures.
Local investors should look to the Reserve Bank of Australia's monthly board meeting minutes, released on Tuesday, for any indications about upcoming interest rate movement.
ANZ economists upgraded short-term iron ore price expectations because of stronger-than-expected demand for steel in China so far this year, which supports higher iron ore prices in the near term.
ANZ's global head of commodity strategy, Mark Pervan, said a marketing trip to China confirmed a more buoyant steel story. Stronger steel demand in China has driven upward short-term price revisions for commodities such as iron ore, which can boost sentiment for related stocks and resources exposures.
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