ASX set to inch up, Wall Street higher as US flags bond buyback

US stocks are ticking higher after the US Treasury Department said it will buy more US government bonds in a move that eased pressure on financial markets worldwide. Strong profit reports for the spring from Estee Lauder, Target and other US companies are also helping to support the stock market.

The S&P 500 rose 0.3 per cent and is on track for its first gain in four days after setting its all-time high last week. The Dow Jones Industrial Average was up 133 points, or 0.3 per cent, as of 2:30 p.m. Eastern time, and the Nasdaq composite was up 0.2 per cent.

The Australian sharemarket is set to edge higher, with futures at 5am AEST pointing to a rise of 13 points, or 0.1 per cent, at the open. The ASX fell for a sixth-straight session on Wednesday. The Australian dollar was stronger at US71.24¢. A busy day on the reporting season calendar is ahead, with and Northern Star among companies due up.

The stock market has been under growing strain as worries about inflation, big government debts and other factors drive Treasury yields higher in the bond market. That ultimately makes borrowing money more expensive for everyone, which slows the economy and undercuts prices for stocks and other investments.

But Treasury yields fell in the morning after the US Treasury Department said it will at least double the size of its planned purchases of longer-term Treasurys from September 9 through November 4. The department said it’s doing so “to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants.”

These longer-term 10- and 30-year Treasurys are less beholden to the Federal Reserve, which can raise or lower very short-term interest rates for overnight loans. President Donald Trump has lobbied for the Fed to lower interest rates to help the economy.

Instead, longer-term yields are set by investors in the bond market, who are deciding how much interest they need to get paid by the US government in exchange for lending it money. And recently, they have been demanding more in interest to make up for the growing risks of high inflation, continued government deficits and other factors.

After the Treasury department’s announcement, the yield on the 10-year Treasury fell to 4.66 per cent from 4.71 per cent late Tuesday. It, though, remains well above its 3.97 per cent level from before the war with Iran sent oil prices and worries about inflation much higher.

The 30-year Treasury yield, which has recently touched its highest level since 2007, fell more sharply to 5.2 per cent from 5.28 per cent late Tuesday.

On Wall Street, Moderna and Merck helped lead the market after they announced encouraging initial results from a study of a cancer vaccine they co-developed.