Markets

Aussie slides on inflation miss

A set of strong US earnings reports sent the S&P 500 stock index to a record high overnight, while oil prices rallied 3 per cent on Saudi Arabia’s pledge to cut exports in August and copper hit a two-year high.

The US dollar edged up after hitting its lowest level since June 2016 as the Federal Reserve began a two-day policy meeting.

The Fed is expected to discuss its monetary policy stance and the timing of a long-awaited balance sheet reduction, a plan seen as likely to be detailed in September. No change to US interest rates was expected.

There is a growing sense that the Fed will want to tread carefully amid signs of subdued US inflation, and markets were reflecting that. They were also influenced by strong German economic data and Greece’s first return to capital markets since 2014.

Investors also are watching for the  US Senate to vote on a repeal of the 2010 Affordable Care Act, which President Donald Trump and Republicans have vowed to undo.

“Right now, it’s kind of risk on. There’s been a certain amount of pullback based on concerns about politics and earnings growth. With politics, arguably the worst has happened with healthcare. There’s only the possibility of a pleasant surprise now,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

“We’ve seen earnings come, in aggregate, well above what was expected. So basically the corporate fundamentals are ratifying what the market has been saying all along,” McMillan said.

In the US stock market, volatility was muted with the VIX index, Wall Street’s so-called fear gauge, at a 23-year low.

Upbeat results from Caterpillar and McDonald’s boosted the Dow and S&P 500. Shares in Google parent Alphabet slid nearly 3 percent, weighing on the Nasdaq, after the company late on Monday night flagged rising costs.

The Dow Jones was up 0.5 per cent, the S&P 500 gained 0.4 percent, and the Nasdaq Composite added 0.1 per cent. MSCI’s index of stock markets across the world was up 0.2 percent, while European shares rose 0.5 per cent.

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