The ASX is poised to drop today, following the Aussie dollar.
ASX futures were down 70 points, or 0.95%, to 7,262 early this morning, while the dollar fell 2.1% to 65.90 US cents around the same time.
Traders on Wall Street were in a pessimistic mood overnight thanks to Federal Reserve chair Jerome Powell’s hawkish remarks ahead of the next rate rise decision in the US.
In his testimony to the US Senate Banking Committee, Powell indicated that he was far from done in the battle against inflation and that the rise increments on the horizon may well be steeper.
"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told the committee.
The remarks clearly killed risk appetite on the markets.
US and European stock markets edge lower
We saw the Dow drop 1.7%, the S&P lose 1.5% and the Nasdaq shed 1.3%, with Tesla (NASDAQ:TSLA) (-3.2%) and Walgreens (-3.7%) notching up some of the larger losses – the latter on the back of its decision not to stock pregnancy termination medication even in states with liberal abortion laws.
The hope now is that US inflation, which has been falling for seven months now, from a high of 9.1% in June to 6.4% in January, continues its downward trajectory.
European sharemarkets closed lower yesterday too, as traders baulked at Powell’s congressional testimony.
Rate fears on the continent were stoked by the release of a European Central Bank (ECB) survey, which indicated rising consumer wage growth expectations.
Mining stocks slumped 2.5% and real estate stocks lost 2.3%. The continent-wide FTSEurofirst 300 index dropped 0.8% and the UK FTSE 100 index held the line with a loss of 0.1%.
Back home, Australians were still processing the 10th consecutive RBA interest rate hike, which is estimated to add around $1,080 to monthly down payments on a $600,000 variable mortgage.
Unlike his counterpart in the US, the RBA governor Philip Lowe has struck a softer note in his comments on the likelihood of more rate rises, with some observers betting on an end to the pain by September, and maybe only one more rise to come before then.
Power prices headed up … again
This doesn’t mean Australian householders can breathe out just yet.
Costs from last year’s energy crisis continue to flow through to consumers, with benchmark power prices set to rise by more than 20% from July.
The Australian Energy Regulator is set to hand down a draft decision setting out increases to default market offers – the price cap or the maximum retailers can charge customers.
This follows increases in the order of 18.3% last year and is bound to add to household pain.
In other news
OANDA senior market analyst The Americas Edward Moya puts it this way:
On oil: “Crude prices got hit with a one-two punch as a hawkish Powell raised concerns that the economy would see a harder recession and sent the dollar skyrocketing.
“This short-term pain for oil however shouldn’t last a while longer given how tight supplies remain. WTI crude wasn’t going to make a big move above this year’s high, so abandoning the breakout above the $80 a barrel level was easily faded.”
On gold: “Gold is getting crushed as the soft-landing trade blew up today and sent the dollar higher. Gold is in the danger zone once again and could see major bearish momentum on the break of the $1800 level.
“The Fed is locked into a much more aggressive tightening stance and that could keep the short-end of the curve heading higher.
“Gold might struggle here as bond bears completely ride this move higher in yields. Non-interest-bearing gold should have some support at the $1,800 level but that could be tested if the next jobs and inflation report support the case for more aggressive rate hikes.”
On Bitcoin: “Every major risky asset class was under pressure following Fed Chair Powell’s first day of testimony. Bitcoin was down but able to hold onto the lower boundaries of its key trading range. Risk appetite is very vulnerable here and if this wave of risk aversion does not pass, cryptos may struggle to make fresh 2023 lows.”