Australia sharemarket expected to follow strong Wall St lead

A positive start for the Australian sharemarket is expected after Wall Street hit record highs on Friday.

SYDNEY, AUSTRALIA – NewsWire Photos May 24, 2021: General vision of The Australian Stock Exchange in Sydney CBD. Picture: NCA NewsWire / Nikki Short

A positive start for the Australian sharemarket is expected after Wall Street hit record highs on Friday as strong earnings reports outweighed concern about a resurgence of coronavirus.

Futures suggest the S&P/ASX 200 index will break its record high of 7406.2 points. The ASX 200 rose 0.1 per cent to a record high daily close of 7394.35 last week.

On Wall Street, the Dow Jones rose 0.7 per cent to 35,061.55, the Nasdaq rose 1 per cent to 14,836 and the S&P 500 lifted 1 per cent to 4411. All three of the US benchmarks hit record highs.

West Texas crude oil futures rose 0.2 per cent to $US72.07 a barrel, Comex copper futures surged 2.5 per cent to $US4.456 a pound, spot gold slipped 0.3 per cent to $US1802.15 per ounce and Singapore iron ore futures fell 2.1 per cent to $US193.25 a tonne.

Notwithstanding economic uncertainty caused by Covid lockdowns in Australia, a positive start to the US earnings season and Wall Street’s ability to look through rising Covid numbers last week should help Australian sentiment.

“So far, the US June quarter earnings reporting season is only 24 per cent done but 87 per cent of results have beaten earnings expectations, 81 per cent have beaten on revenue and consensus earnings expectations for the quarter have been revised up from 62 per cent, year on year, at the start of July to now 69 per cent with upside surprise concentrated in cyclical sectors,” AMP Capital chief economist Shane Oliver said.

“Given the rebound in various macro variables this could end up closer to 90 per cent.”

He said the resurgence of coronavirus, higher-than-expected inflation, expectations of less bond buying by the Fed and geopolitical risks could trigger a “short-term correction” in shares, but expectations of improving global growth and earnings from more fiscal stimulus, economic reopening and still low interest rates augured well for shares over the next 12 months.

“Given the increased uncertainty we now expect the RBA to delay tapering its bond buying from September for a few months, but still see the first rate hike coming in 2023, but it may now be later in the year,” he added.

Key events this week include Australia’s June quarter CPI data on Wednesday and the Federal Reserve’s interest rate decision early Thursday Australian time.