The morning catch up: ASX to start flat despite changing sentiment in the US

Highlights

• US markets extend gains, driven by trade optimism and strong corporate earnings.

• The Australian market remains stable, with financial and materials sectors seeing limited movement.

• Local focus turns to CPI data, while global markets react to trade developments.

The US equity markets saw extended gains, driven by optimism surrounding trade negotiations, corporate earnings reports, and declining bond yields. The markets received further support as Federal Reserve commentary appeared more dovish, coupled with easing volatility. Despite the positive momentum in the US, the Australian market is set to open with little movement, largely unaffected by the strong US performance.

In the US, optimism increased over trade tensions with China easing, especially with President Trump announcing he does not plan to replace Federal Reserve Chair Jerome Powell. This provided a boost to global sentiment, including Australian markets. However, the sentiment shift is expected to have a modest influence on sectors such as financials and materials, which are important drivers in the Australian market.

The Australian Market Outlook

The ASX 200 closed the week with positive performance, signaling a recovery after previous declines. Despite this, little upside is expected in the short term. The materials sector, which includes ASX Mining Stocks such as Paladin Energy (PDN), remains subdued. Financials, which performed strongly last week, are not expected to lead the market this week. The focus in Australia will shift toward the upcoming CPI data for the March quarter, which will provide insight into inflation trends and the Reserve Bank of Australia's future policies.

The Australian market remains influenced by global developments, with focus turning to key economic releases both locally and internationally. For instance, economists are closely monitoring CPI data, which is expected to show moderate inflation levels.

US Trade Developments and Global Sentiment

In the US, trade discussions between the US and China remain a significant factor. The potential reduction in tariffs, which President Trump mentioned, has lifted investor sentiment globally. The discussions between the two countries have led to tentative reductions in tariffs on US goods, which could further improve the trade outlook. This has contributed to a broader recovery across global equity markets, including European markets, which also saw gains.

Meanwhile, other regions have also benefited from the improving sentiment. European markets reached a three-week high, supported by similar trade optimism. Markets in the region experienced strong gains, with defense and construction sectors leading the way.

Commodities and Currencies

Global commodities were mixed, with oil prices rising modestly despite concerns over oversupply. Metals such as copper and aluminum showed some gains, although base metals like copper retreated slightly. In contrast, gold prices fell, reflecting a stronger US dollar and improved trade sentiment.

Currency movements also reflected these shifts, with the US dollar strengthening against several major currencies, including the Euro and the Australian dollar. These movements may continue to affect the outlook for global trade, as well as commodity prices.

Small-Cap Performance and Developments

The S&P/ASX Small Ordinaries index posted modest gains, signaling a slight improvement in smaller stocks. Small-cap stocks have been showing resilience despite the broader market trends, which are influenced heavily by large-cap sectors such as mining and financials.

In sector-specific news, companies like Lindian Resources Ltd are making strategic moves to consolidate their positions. Lindian has executed an agreement to acquire the remaining interest in its bauxite project, strengthening its market position. Similarly, Alkane Resources Ltd is pursuing a merger with Mandalay Resources, signaling consolidation in the mining sector.

Other companies in the pharmaceutical and defense sectors are also seeing notable developments. Recce Pharmaceuticals Ltd has entered into an agreement to advance its research in infectious diseases, supported by funding from the US government. These moves reflect the ongoing activity within sectors beyond mining, although ASX Mining Stocks continue to dominate the overall market landscape.