Wall Street Rallies Led by Tech Giants as Australian Inflation Data Looms

Shares on Wall Street rallied on Tuesday, led by gains in tech giants like Tesla, Microsoft, Meta, and Alphabet. The tech-heavy S&P 500 index saw its best back-to-back rally in two months, with the Nasdaq and Dow Jones also closing higher. Despite macroeconomic fears, the strong balance sheets and competitive positions of the tech megacaps suggest they can extend their positive performance.

The rally comes ahead of a critical earnings season for the 'Magnificent Seven' tech companies that carry heavy weightings in the S&P 500. Their performance is seen as a major test for the bull run in equities. However, Goldman Sachs warned that more declines in stock markets are likely, as clients have not reduced their equity exposure enough.

In Australia, the focus is on the March quarter inflation figures due to be released at 11:30am AEST. The data will be critical for the Reserve Bank's next interest rate decision in early May. Economists expect the Consumer Price Index (CPI) to rise 1.0% in the quarter and 3.6% over the 12 months, largely in line with market predictions.

The most significant price rises were in Rents (+2.1%), Secondary education (+6.1%), Tertiary education (+6.5%), and Medical and hospital services (+2.3%). While annual CPI inflation has continued to ease from 4.1% in the previous quarter, the quarterly rise of 1% is higher than the 0.6% increase in the December quarter. This could further dent chances of an early rates cut by the Reserve Bank.

Why this matters: The acceleration in Australia's consumer price index over the first quarter of 2024 indicates that the country's inflationary pressures are far from over. Many advanced economies are facing difficulties in taming the 'last mile' of inflation, and the broad-based price increases in Australia, especially for services and non-tradables, prove especially sticky. This reduces the likelihood of rate cuts by the Reserve Bank later this year, further compounding cost-of-living pressures on households and businesses.

In corporate news, Cleanaway Waste Management "denied being in discussions with or approached by Seven Group Holdings regarding a takeover," despite a Bloomberg report suggesting otherwise. Cleanaway's shares jumped over 15% to a two-year high on the rumor. Perpetual also reported $5.2 billion in net outflows.

The strong performance of U.S. tech stocks is expected to translate to a 0.28% rise in the ASX200 on open. However, the Australian dollar and bond yields jumped as the CPI data beat forecasts, reflecting mounting uncertainty in markets. Traders are buying put options that pay off if stocks keep tumbling.

Key Takeaways

• Wall Street rallied, led by tech giants like Tesla, Microsoft, Meta, and Alphabet.
• Australia's Q1 2024 CPI rose 1%, higher than expected, reducing chances of early rate cuts.
• Cleanaway denied takeover talks with Seven Group, despite a 15% share price jump.
• Perpetual reported $5.2 billion in net outflows.