Australia

Australian shares are set to gain this morning following a positive session on Wall Street. Investors welcomed strong Q2 earnings from major US banks, which helped to lift major indices, along with excitement in the information technology sector related to AI. Meanwhile, Chinese shares continued to slump following data showing the country’s economic growth hit a wall last quarter.

ASX futures were up 39 points or 0.5% as of 7:00am on Wednesday, suggesting a higher open.

US stocks extended recent gains Tuesday, with banks and artificial-intelligence related companies boosting major indices.

The S&P 500 rose 0.7%, while the Dow Jones Industrial Average added 1.1%, about 367 points, and the Nasdaq Composite advanced 0.8%. Canada’s benchmark index followed the upward trend, gaining 0.7%.

The Dow extended a winning streak to seven days, closing at its highest level since April 2022. The Nasdaq is now 37% higher in 2023.

Bank stocks rallied after earnings reports from bellwethers Bank of America and Morgan Stanley, among others. Morgan Stanley rose more than 6% after executives said client activity strengthened during the quarter, raising hopes for a return of deal-making activity that has been stalled by higher interest rates.

In commodity markets, Brent crude oil added 1.6% to US$79.77 a barrel while gold increased 1.2% to US$1,978.50.

Australian government bonds were lower, with the 2 Year yield declining to 3.94% and the 10 Year yield slightly off at 3.97%. US Treasury notes pushed higher, with the 2 Year yield rising to 4.77% and the 10 Year yield edging up to 3.79%.

The Australian dollar declined slightly to 68.09 US cents from its previous close of 68.15. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, remained near 94.93.

Asia

Chinese shares ended lower, extending morning losses as weak economic data weighed on sentiment. Several economists have cut 2023 GDP forecasts for the country after weaker-than-expected 2Q growth, while other indicators like retail sales have also fueled concerns about the recovery. Citi economists said China's 2023 target of "around 5% growth" is now at risk, and lowered their GDP forecast to 5% from 5.5%. Software makers and media stocks weighed, with AI company iFlytek down 4.1%. Auto-related and consumer stocks gained after the commerce ministry announced a plan to boost consumption. Furniture maker Red Star Macalline rose 3.1%. The benchmark Shanghai Composite Index fell 0.4% to 3197.82, the Shenzhen Composite Index lost 0.3% and the tech-heavy ChiNext Price Index slipped 0.3%.

Hong Kong shares ended lower, extending morning losses as market sentiment was weighed down by data that refreshed concerns about China's economic growth. Economists from JP Morgan and Citi have both cut their China 2023 GDP forecasts in the wake of soft 2Q growth data. Also in focus are US-China trade ties. A Bloomberg report citing unnamed sources as saying the Biden administration may restrict investments in China resurfaced worries about tensions between the two countries, following past reports from other media outlets about possible curbs. The Hang Seng Index fell 2.1% to 19015.72. Developers led the losses, with the Hang Seng Mainland Properties Index losing 5.5%. Country Garden Holdings shed 8.0% and Longfor plunged 9.9%. Tech companies also lost. Tencent slid 4.6% and Meituan dropped 2.6%.

Japanese stocks ended higher, led by gains in electronics and bank shares, as fears have eased about the Federal Reserve's further tightening and the global economic outlook. Murata Manufacturing gained 2.7% and Mitsubishi UFJ Financial Group climbed 2.4%. The Nikkei Stock Average rose 0.3% to 32493.89.

Indian stocks ended higher, extending a rally for a fourth straight trading day. The benchmark Sensex index added 0.3% to settle at 66795.14. The market has enjoyed a good run in recent sessions as investors worried less about the Fed's policy tightening, adopting a risk-on sentiment. IT-services providers led gains as the sector continued its recent strength. Infosys rose 3.7%, HCL Technologies was up 1.2% and Wipro added 0.4%.

Europe

European stocks rose as investors reacted positively to US corporate earnings. The pan-European Stoxx Europe 600 advanced 0.6% while Germany’s DAX and France’s CAC 40 each gained 0.4%. Property and construction stocks were among the biggest gainers.

"European and most US stock indices remain in positive territory for the day despite mixed US bank results," IG analyst Axel Rudolph wrote.

The United Kingdom’s FTSE 100 index rose 0.6% to 7453 points, lifted by financial and oil-exposed stocks amid positive trading throughout Europe. Ocado shares outperformed the blue-chip index, closing up 19% after it reported a return to underlying profit in 1H. Taylor Wimpey and home builder Persimmon were also among the top risers, with shares closing up 4.6% and 4.3%, respectively. On the opposite side of the table, Compass Group shares closed down 1.5%, followed by Beazley and BT, down 1.4% and 1.1% respectively.

North America

US stocks extended recent gains Tuesday, with banks and artificial-intelligence related companies boosting major indices.

The S&P 500 rose 0.7%, while the Dow Jones Industrial Average added 1.1%, about 367 points, and the Nasdaq Composite advanced 0.8%. Canada’s benchmark index followed the upward trend, gaining 0.7%.

The Dow extended a winning streak to seven days, closing at its highest level since April 2022. The Nasdaq is now 37% higher in 2023.

Bank stocks rallied after earnings reports from bellwethers Bank of America and Morgan Stanley, among others. Morgan Stanley rose more than 6% after executives said client activity strengthened during the quarter, raising hopes for a return of deal-making activity that has been stalled by higher interest rates.

Bank of America shares climbed 4.4% after it reported a 19% increase in net income from a year ago. Its consumer division grew revenues by 15%.

"Investor sentiment remains buoyant," said José Torres, senior economist at Interactive Brokers. "Banks continue to believe that consumers are keeping healthy finances."

Charles Schwab was the S&P 500's best performer, rising 13% after the brokerage giant reported results that beat Wall Street estimates and said its pace of deposit outflows has continued to slow. Smaller banks also performed well, with the KBW Nasdaq Regional Banking Index closing up 4.1%.

Meanwhile, AI mania continued. Microsoft rose 4% after announcing plans for several new initiatives to sell AI-powered products to consumers and businesses.

"We believe over the next three years over 50% of the Microsoft installed base will ultimately be on this AI functionality...which changes the game" for Chief Executive Satya Nadella and the company, wrote Wedbush Securities analyst Dan Ives.

Microsoft's market capitalization rose by more than $100 billion. Shares of Nvidia, the S&P 500's best performer in 2023, rose 2.2%. Nvidia produces graphics chips used by companies that make AI-chat models.

Information technology was the best-performing S&P 500 sector, followed by financials.

Investors have grown increasingly bullish in recent weeks, pouring money back into US equity exchange-traded funds and bidding up shares of technology companies as they price in a so-called soft landing for the economy, in which Fed rate hikes do not cause a serious recession.

Some analysts and investors are concerned the outlook has grown too rosy.

"A flood of soft inflation data has equity investors excited about a sustained rally," said John Lynch, chief investment officer at Comerica Wealth Management. "While we appreciate the technical momentum of the market, we are less optimistic that such frothy price to earnings multiples are warranted."

The S&P 500 is currently trading at around 19.5 times its expected earnings over the next 12 months, higher than its five-year average of 18.9 times, according to FactSet.

Investors will get their next look at how companies fared in the second quarter Wednesday, with Tesla, Netflix and Goldman Sachs among the companies scheduled to report earnings.

Data released Tuesday showed US monthly retail sales rose in June but came in below expectations. Investors are closely watching consumer activity for any signs that the Federal Reserve's rate hike campaign is beginning to affect demand.

"The consumer is still in really healthy shape and that's supporting retail sales," said Josh Jamner, investment strategist at ClearBridge Investments. "But there are some potential headwinds to the consumption story," he said, including more layoffs as rate increases take effect and the resumption of student loan payments.