Australian shares head into Monday with a positive lead from Wall Street after a shock US jobs report pushed the S&P 500 to a record high and reduced expectations for another Federal Reserve rate rise.
The US economy lost 23,000 nonfarm jobs in July, according to the Bureau of Labor Statistics, while the unemployment rate edged down to 4.1%. May and June payroll growth was also revised lower by a combined 103,000 jobs, adding to signs that the US labour market is cooling.
Wall Street focused on what the weaker data could mean for interest rates. The S&P 500 rose 0.6% to a record 7,757.64 on Friday. The Nasdaq Composite jumped 1.3% to 26,690.62, while the Dow Jones Industrial Average gained 0.3% to 54,036.93.
Why Did Stocks Rise After Weak Jobs Data?
Investors took the jobs miss as a sign that the Federal Reserve may have less reason to raise rates again soon.
The Fed kept its target range at 3.50% to 3.75% in July. After Friday’s jobs report, the market-implied chance of a quarter-point September rate rise fell to about 44%, from 54.7% before the data.
US bond yields also moved lower, with the 10-year Treasury yield ending around 4.64%. Lower yields can support share valuations, especially technology and other growth stocks.
What Does This Mean for the ASX on Monday?
The S&P/ASX 200 finished Friday down just 0.09% at 9,263.60, before Australian investors could react to the US employment surprise. Wall Street’s record close therefore gives the local market a supportive offshore lead, although it does not guarantee an ASX rise.
Technology shares will be one area to watch. The Nasdaq’s 1.3% rally and lower US yields could improve sentiment towards Australian growth stocks.
Gold miners could also attract interest. August Comex gold futures settled at US$4,340.70 an ounce on Friday, up 7.2% for the week. Gold often benefits when US rate expectations fall and the US dollar weakens.
The Australian dollar strengthened after the jobs release. AUD/USD was around 0.7068 late Friday in New York, up about 0.5% on the day. A stronger Australian dollar can help importers but may reduce the local-currency value of overseas earnings for some companies.
Banks and other rate-sensitive shares may have a mixed reaction. Lower global yields can help market valuations, but Australian financial stocks will also turn their attention to the Reserve Bank of Australia.
RBA Decision Adds Another Major Catalyst
The RBA’s August Monetary Policy Board meeting runs from Monday, 10 August, to Tuesday, 11 August. The decision is due at 2:30 pm AEST on Tuesday. Australia’s cash rate is currently 4.35%.
Conclusion
For ASX investors, Monday’s key question is whether the market focuses on lower US rate-hike risk or growing signs of economic weakness.
Wall Street clearly chose the rate-relief story on Friday. That creates a positive backdrop for Australian shares, with technology, gold and other rate-sensitive stocks likely to be closely watched. However, the weak jobs report also points to softer US economic momentum. With the RBA decision arriving on Tuesday, interest-rate expectations should remain the main driver of market sentiment early next week.
