ASX will rise as Wall Street rallies

Parts of the US economy are still piping hot, especially the job market, but some discouraging signs have emerged recently. A report Friday confirmed that consumer sentiment had fallen to its lowest point since the University of Michigan began record-keeping, hurt mainly by high inflation. Another low this week suggested that the US manufacturing and services sectors are not as strong as economists thought.

Such weakening data raise concerns about the strength of the economy. But they can also be good for the financial markets, paradoxical as that may seem.

They could lead to less upward pressure on inflation, which would ultimately mean that the Federal Reserve doesn’t have to raise interest rates as aggressively. And interest rates encourage trading in everything from stocks to cryptocurrencies.

“We have certainly seen a cooling in many areas. Gasoline purchases have fallen, house prices appear to be cooling across the board,” Frederick said. “To me, all this says that what the Fed is doing now seems to have at least some impact. Whether or not it’s enough to bring inflation down, I don’t think we know yet.”

One nugget in the consumer confidence report could carry a special weight for the markets. It showed that long-term consumer inflation expectations had moderated to 3.1 percent, from a semi-annual reading of 3.3 percent. That is critical for the Fed, as expectations of higher inflation in the future could lead to buying activity that further fuels inflation in a self-fulfilling vicious circle.

Last week, the Fed hiked its key short-term interest rates by the widest margin in decades and said another such hike could be coming, although they wouldn’t be common.

Last week, investors modestly revised their expectations for the size of the Fed rate hike to early next year.

As a result, yields on the government bond market have fallen. Two-year Treasury yields, which tend to move with expectations for the Fed’s actions, fell back to 3.06 percent from 3.40 percent in the middle of last week.

The yield on the 10-year Treasury, which is the foundation for the world’s financial system, rose to 3.13 percent on Friday, from 3.07 percent at the end of Thursday. But it’s also moderated after hitting 3.48 percent last week.

It started the year just above 1.50 percent.

A separate economic report from Friday found that new home sales unexpectedly accelerated last month. But the trend for housing has largely been lower as it has been at the forefront of Fed rate hikes.

More expensive mortgage rates are hurting the industry, and a separate report earlier this week showed sales of previously occupied homes slowed last month.

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Rising mortgage rates pushed LendingTree, the online marketplace that helps people find mortgages and other loans, to warn Friday that it expects to report weaker second-quarter revenue than previously forecast. The stock fell 7.9 percent.

The vast majority of Wall Street went in the opposite direction. More than 95 percent of shares in the S&P 500 closed higher.

Travel-related stocks were among the biggest risers on Friday. Cruise operator Carnival rose 12.4 percent after reporting weaker results for the most recent quarter than analysts had expected, but also said booking trends are improving. Royal Caribbean rose 15.8 percent for the biggest gain in the S&P 500. United Airlines rose 7.5 percent, while Wynn Resorts climbed 12.1 percent.

AP

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