ASX 200 set to open higher as investors shrug off crypto dramas and FTX’s collapse

Investors are cheering signs that inflation in the US is finally starting to cool, setting the stage for a positive start to trade on the ASX this week.

ASX futures are pointing to a 0.6 per cent gain after a roller coaster ride on global markets last week, which culminated in cryto darling FTX filing for bankruptcy on Friday. Picture: NCA NewsWire / David Swift

The local sharemarket is poised to open higher on Monday amid hopes inflation in the world’s biggest economy, the US, is cooling and signs China is beginning to relax its strict Covid-19 restrictions.

ASX futures are pointing to a 0.6 per cent gain to 7204 points after a roller coaster ride on global markets last week, which culminated in crypto darling FTX filing for bankruptcy on Friday in one of the highest profile collapses in the digital currency sector.

The impending demise of FTX initially spooked investors, triggering a market sell-off earlier in the week. The crypto exchange filed for bankruptcy after traders rushed to withdraw $6bn from the platform within 72 hours and rival Binance walked away from a proposed rescue deal.

But attention soon swung to the release of inflation data, prompting a market rally with US stocks posting their biggest gains in months.

The benchmark S&P 500 jumped 0.9 per cent to 3992.93 Friday – a day after weaker inflation data sparked its biggest one-day gain since April. The Dow Jones Industrial Average firmed 0.1 per cent to 33747.86, while the Nasdaq vaulted 1.9 per cent to 11323.33 points.

AMP Capital chief economist Shane Oliver said cryptocurrencies benefited from easy money and have been suffering from its withdrawal. But the sector’s dramas would unlikely hit global growth.

“Financial accidents are common outcomes of Fed tightening cycles and the latest crypto problems could have further to go,” Dr Oliver said.

“While this may be bad news for crypto traders and Lamborghini sales it’s unlikely to have a major impact on global growth and sharemarkets as investor and financial system exposure to it is relatively low.”

After initially spooking investors, the demise of crypto darling FTX is unlikely to hit global growth.

Instead, investors were focused more on US inflation data, with China beginning to ease its pandemic controls under its stringent zero-Covid policy also buoying sentiment.

Headline inflation in the US dropped down to 7.7 per cent in October. This compares with a peak of 9.1 per cent in June.

“But more importantly core inflation came in at a slower than expected 0.3 per cent (month on month), easing to 6.3 per cent y-o-y from 6.6 per cent,” Dr Oliver said.

“Prices for used cars, household furnishings, medical care and airfares fell. It’s been a long time coming, but underlying US inflation finally appears to be easing”.

Dr Oliver said the rate of inflation in the US is still too high and the Federal Reserve will “remain hawkish and wary for a while yet”.

“But October’s lower than expected inflation outcome and increasing signs that the cyclical peak in inflation is behind us is consistent with a downshift to a 0.5 per cent hike at the Fed meeting next month. Money market expectations for a peak in the Fed Funds rate near 5 per cent next year may be a bit too hawkish.”

Meanwhile, the Reserve Bank’s eight months of rapid interest rate hikes appear to be working, Dr Oliver said. RBA deputy governor Michele Bullock last week hinted at a possible pause in interest rate hikes after the central bank lifted the official cash rate 2.75 points to 2.85 per cent this year.

“It’s only a matter of waiting for the lags to play out,” Dr Oliver said.

“Housing indicators are all very weak with HIA data in the last week showing a sharp plunge in new home sales; already depressed consumer confidence has now fallen to a new cycle low; real retail sales appear to be stalling; and in the last week NAB credit and debit card data showed a fall in consumer spending in October with a fall in discretionary spending.

“Although a pause is possible next month – if upcoming wages, jobs and CPI data are softish – our base case is for another 0.25 per cent rate hike in December to 3.1 per cent, with the risk of one final hike in February. But then for the cash rate to peak in the low threes as it becomes clear that growth is slowing sharply next year and that this will push inflation down.”

It comes as The Westpac-Melbourne Institute consumer sentiment index fell

6.9 per cent from 83.7 in October to 78.0 in November. Westpac chief economist Bill Evans said: “Certainly, more consumers expect substantial follow-on rate rises.

“Amongst those surveyed after the RBA decision, nearly 60 per cent expect rates to increase by 1 percentage point or more over the next year, up on 54 per cent in the October survey,” he said.

CommSec senior economist Ryan Felsman said jobs and wages data will be this week’s focus. The Bureau of Statistics will release its wage price index on Wednesday and its October labour force survey on Thursday.

“According to CBA group economists, the WPI may have lifted 0.9 per cent in the September quarter. Economists expect that the economy added around 15,000 jobs with the jobless rate edging up from 3.5 per cent to 3.6 per cent and the participation rate steady at 66.6 per cent,” Mr Felsman said.