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Highlights:
- US Core Inflation: December core CPI rose 0.2% month-on-month, below expectations, driving bond yields lower and boosting market sentiment.
- Wall Street Rally: Major US indices logged their strongest sessions in months, fueled by robust earnings from top banks and easing inflation concerns.
- ASX 200 Outlook: Futures indicate a strong start, with tech and financials poised to benefit from Wall Street's positive momentum.
The Australian share market is expected to open higher today, with ASX 200 futures rising by 104 points (+1.26%) as of 8:30 am AEDT. This surge follows a remarkable performance on Wall Street, driven by cooling US core inflation data and stellar earnings reports from major banks.
US core inflation came in softer than anticipated, with the December figure increasing by 0.2% month-on-month, slightly below the forecast of 0.3%. On an annualized basis, core inflation settled at 3.2%, also below expectations. Headline inflation rose 0.4% month-on-month, marginally exceeding the consensus of 0.3%, bringing the annualized rate to 2.9%. Energy costs accounted for 40% of the total increase, rising 2.6% for the month, while food prices saw a 0.3% gain, decelerating from the prior month’s 0.4%.
Wall Street indices responded positively to the inflation report. The S&P 500, Nasdaq, and Russell 2000 logged their best sessions in months, supported by a sharp drop in bond yields. The US 10-year Treasury yield recorded its largest single-day decline since August 2024, although it only reached a one-week low. Despite these developments, market expectations for the Federal Reserve's January meeting remain stable, with a 97.3% probability of a rate hold. However, sentiment shifted slightly for later in the year, as the likelihood of holding rates in May dropped from 63.4% to 54.7%.
Adding to the positive momentum, several US banks delivered better-than-expected earnings results. Institutions like JPMorgan, Citi, and Wells Fargo outperformed expectations across key metrics, including net interest income (NII), net interest margins (NIM), and earnings per share (EPS). These results fueled gains of 2-6% for banking stocks, further bolstering the broader market.
In local updates, Genesis Minerals (ASX:GMD) reported second-quarter gold production of 57,055 ounces, remaining on track to achieve its fiscal year 2025 guidance of 190,000 to 210,000 ounces. Meanwhile, Rio Tinto (ASX:RIO) announced fourth-quarter Pilbara iron ore production of 86.5 million tonnes, aligning with market expectations. However, the company flagged that its fiscal year 2024 iron ore costs are expected to reach the upper half of its $21.75-$23.50 per tonne guidance.
Investors will be closely watching the performance of discretionary and technology stocks on the ASX today. These sectors were among the best performers on Wall Street overnight, and the local tech sector could see a rebound after a six-day losing streak, during which it declined by 6.4%. The strong earnings momentum from US banks may also provide a favorable lead for Australian financial stocks.
The day ahead holds significant potential for gains across multiple sectors as investors digest the positive signals from international markets and corporate updates.
