ASX set to rise for third week

ASX stockexchange in sydney, stockmarket, generic. nsw, australia. AFR PICTURE BY PETER BRAIG, 080424 . SPECIALX 240408
ASX stockexchange in sydney, stockmarket, generic. nsw, australia. AFR PICTURE BY PETER BRAIG, 080424 . SPECIALX 240408
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Local shares may extend their advance above the 5900 level on Monday morning, building on sentiment from last week and Wall Street's continued bullish run. The S&P/ASX 200 Index topped 5900 on Friday, extending its rise since October 5 to 4.5 per cent.

In New York, the Standard & Poor's 500 Index rose over the weekend to end higher for a sixth consecutive week, with investors looking through a range of earnings misses including GE, renewed worries about China's debt levels and political uncertainties inside and outside of the US.

News that the Trump administration's tax cuts made a key step forward in the US Senate bolstered optimism. In addition, President Donald Trump signalled his list for the next Federal Reserve chair has narrowed to Janet Yellen, Jerome Powell and John Taylor.

Bulls, as has been said repeatedly in recent months, remain in control.

ASX futures were up 5 points; the benchmark has added 255 points in a little more than two weeks, decidedly snapping out of the lethargy that characterised its performance from late May through earlier this month.

Key to the market's ability to rise this week will be what happened to consumer prices in the September quarter; the latest report will be released on Wednesday.

TD Securities and the broader market sees September quarter CPI up 0.8 per cent, as higher energy prices flow through to household budgets.

"The July utility price spike will distort headline CPI to the upside and while this will be trimmed out of the underlying measures, domestic inflation is poised to spike well past 3 per cent a year. We look for trimmed mean and weighted median measures to edge up to a shade over 2 per cent over the year, back within the RBA's 2-3 per cent band, after 18 months below it."

NAB also expects a 0.8 per cent rise, with the more important core measures seen steady at about 0.4 per cent to 0.5 per cent.

"Third quarter CPI along the lines we are expecting is broadly on track with the RBA's August Statement of Monetary Policy forecasts," said Tapas Strickland, an economist at the bank. "As for the outlook, inflation is only expected to rise gradually and this quarter's CPI will likely support that expectation."

'Inflation should gradually lift'

Mr Strickland said Reserve Bank policymakers will seek to determine whether inflation has "truly bottomed" as the core data would suggest. "If so, inflation should gradually lift as the labour market tightens."

NAB is forecasting two rate hikes in the second half of 2018, which are dependent on the unemployment rate being low enough by mid-2018 "to give the RBA confidence in wages and inflation picking up", Mr Strickland said.

Last week former RBA governor Glenn Stevens said global investors have become complacent about the risks of a sharp rise in inflation ould see "markets flip from their current scepticism" that central banks couldn't hit their targets "to worries about them being exceeded".

Capital Economics' Kate Hickie said pending technical changes to the CPI index in the fourth quarter mean "we will soon have a better idea of the 'true' rate of inflation", which she expects will show that inflation will be below the RBA's target range throughout 2018 and the bank will hold rates steady throughout 2018 too.

On the corporate front this week is a ramp in annual general meetings. As well, bank reporting season begins this week with ANZ on Thursday. NAB is set for November 2 and Westpac on November 6. CBA's annual meeting will be held on November 16.

Overseas, earnings will likely dominate US headlines. Among the companies reporting this week are GM, Ford Motor, American Airlines, Chevron, Exxon Mobil and a slew of technology companies including Alphabet, Amazon.com, Microsoft and Twitter. Apple reports on November 2.

While US profit growth is slowing, the outlook is overall positive and the run of record highs seems intact. The S&P 500 has set 49 fresh highs so far this year, the Dow is at 53 and the Nasdaq at 62, according to Bloomberg. It appears that optimism finally is spilling into the ASX.

This story ASX set to rise for third week first appeared on The Sydney Morning Herald.