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ASX set to rise as US market kicks off crucial week with gains

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The wide expectation is that the Fed will raise its federal funds rate again, to its highest level since 2001, as it fights to bring inflation down. But the hope among traders is that will be the final increase of this cycle because inflation has been cooling since last summer.

High rates undercut inflation by slowing the entire economy in a blunt move, as well as by hurting prices for stocks and other investments. That caused many investors to brace for a recession, but the economy has so far remained resilient due largely to a remarkably solid job market.

A report on Monday suggested the U.S. services industry is continuing to grow, but at a slower pace than economists expected. On the upside for the economy, the preliminary report from S&P Global also suggested U.S. manufacturing isn’t doing as badly as feared. Overall, growth in business activity during July appears to be at its slowest in five months.

Stocks have rallied hard this year on hopes the economy can continue to grow as inflation cools enough to get the Fed to not only stop hiking rates but to begin cutting them next year. Such a not-too-hot and not-too-cold outcome would mean the Fed pulls off a tricky “soft landing” for the economy.

“A lot would need to go right for such an outcome, in our view,” strategists at BlackRock Investment Institute wrote in a report. Rate hikes take a notoriously long time to take full effect across the economy, and they can cause unanticipated parts of it to break.

The BlackRock strategists also warn profits may be under pressure in the second half of the year as increased wages for workers eat into profit margins.

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The big run for stocks in the S&P 500 this year also leaves them looking expensive compared with history, even outside the big seven stocks that have driven most of the gains, according to Doug Ramsey, chief investment officer of The Leuthold Group.

He calls this “another chance to buy high” after the market’s rebound from the 2020 COVID crash.

Public Storage, which runs self-storage facilities, rose 0.9 per cent after it said it would buy Simply Self Storage for $2.2 billion from Blackstone Real Estate Income Trust.

In the bond market, the yield on the 10-year Treasury was holding steady at 3.84 per cent. It helps set rates for mortgages and other important loans.

In markets abroad, European stocks were mixed after data suggested manufacturing and services industries across the continent are weaker than expected. The European Central Bank will meet on interest rates on Thursday.

In Asia, indexes were mixed. Stocks sank 2.1 per cent in Hong Kong and 0.1 per cent in Shanghai, but they were stronger in Tokyo and Seoul.

AP

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.



The wide expectation is that the Fed will raise its federal funds rate again, to its highest level since 2001, as it fights to bring inflation down. But the hope among traders is that will be the final increase of this cycle because inflation has been cooling since last summer.

High rates undercut inflation by slowing the entire economy in a blunt move, as well as by hurting prices for stocks and other investments. That caused many investors to brace for a recession, but the economy has so far remained resilient due largely to a remarkably solid job market.

A report on Monday suggested the U.S. services industry is continuing to grow, but at a slower pace than economists expected. On the upside for the economy, the preliminary report from S&P Global also suggested U.S. manufacturing isn’t doing as badly as feared. Overall, growth in business activity during July appears to be at its slowest in five months.

Stocks have rallied hard this year on hopes the economy can continue to grow as inflation cools enough to get the Fed to not only stop hiking rates but to begin cutting them next year. Such a not-too-hot and not-too-cold outcome would mean the Fed pulls off a tricky “soft landing” for the economy.

“A lot would need to go right for such an outcome, in our view,” strategists at BlackRock Investment Institute wrote in a report. Rate hikes take a notoriously long time to take full effect across the economy, and they can cause unanticipated parts of it to break.

The BlackRock strategists also warn profits may be under pressure in the second half of the year as increased wages for workers eat into profit margins.

Loading

The big run for stocks in the S&P 500 this year also leaves them looking expensive compared with history, even outside the big seven stocks that have driven most of the gains, according to Doug Ramsey, chief investment officer of The Leuthold Group.

He calls this “another chance to buy high” after the market’s rebound from the 2020 COVID crash.

Public Storage, which runs self-storage facilities, rose 0.9 per cent after it said it would buy Simply Self Storage for $2.2 billion from Blackstone Real Estate Income Trust.

In the bond market, the yield on the 10-year Treasury was holding steady at 3.84 per cent. It helps set rates for mortgages and other important loans.

In markets abroad, European stocks were mixed after data suggested manufacturing and services industries across the continent are weaker than expected. The European Central Bank will meet on interest rates on Thursday.

In Asia, indexes were mixed. Stocks sank 2.1 per cent in Hong Kong and 0.1 per cent in Shanghai, but they were stronger in Tokyo and Seoul.

AP

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.

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