The ASX will follow the US markets down, according to ASX futures which were down 43 points or 0.6% to 6,774 this morning. The dollar too was down, trading at 67.35 US cents.
This is part of a broader trend – over the course of 2022 the ASX200 has lost 8.3%.
On the news flow front, Australian investors will be waiting on the national accounts for the June quarter to be released today, which will provide a measure of how effective the rate hikes have been in cooling the economy.
Pessimism in the US grows
There clearly isn’t much optimism among our American brethren.
In the first day of trade following the Labor Day long weekend, the Dow Jones index fell 173 points or 0.6% to 31,145, the S&P 500 lost 0.4%, falling 16 points to 3,908, and the Nasdaq slipped 86 points or 0.7%, to 11,545, the latter’s seventh consecutive day of losses and longest losing streak since November 2016.
Morgan Stanley (NYSE:NYSE:MS)’s chief equity strategist Mike Wilson, who correctly predicted the current slump, believes the S&P 500 is set to enter a bear market as 2022 wears on, especially if the US economy enters a recession.
He now believes that a slowing economy is the bigger threat to stocks than inflation and expects earnings to fall 3% even in the absence of a recession.
“We think the next several quarters will end up containing some of the most significant downward revisions to forward EPS forecasts we have seen in the past several cycles,” Wilson told Bloomberg.
Where there’s good news, there’s bad
Despite signs from governor Philip Lowe that the RBA might now be ready to ease off on the steepest hikes, there are no such signs from the US that the Fed is at the end of its rate-rising run.
The pessimism was fuelled by survey results from the Institute for Supply Management, which showed that the services sector picked up in August for the second straight month with stronger growth and employment, along with easing supply bottlenecks and price pressures. Meanwhile, government bond yields soared.
This good news gave weight to the idea that the Fed isn’t done. Many US observers think another bumper 0.75% rise is on the horizon. And when America sneezes … well, you know the saying.
In Europe, the news was slightly brighter, with the pan-European STOXX 600 index moving up 0.2%. The German Dax index was also up 0.9%, bolstered by Volkswagen (ETR:VOWG_p) shares, which were up 3.7% on news that the company will trigger an IPO of its sports car brand Porsche.
Aspiration nation
Meanwhile, in the UK, the FTSE index rose by 0.2% on reports that newly minted PM Liz Truss might freeze energy bills.
Truss started her tenure with a speech in which she acknowledged the global headwinds but promised to transform Britain into an “aspiration nation” by stemming energy costs, reducing the burden on families and fixing the healthcare system.
She paid tribute to her predecessor Boris Johnson, saying he “delivered Brexit, the COVID vaccine and stood up to Russian aggression”.
“I have a bold plan to grow the economy through tax cuts and reform,” she said in the speech. “I will cut taxes to reward hard work and boost business-led growth and investment.”
In other news
Global oil prices ended a two-day rally triggered by OPEC and its allies – including Russia – agreeing to reduce crude production by 100,000 barrels a day on Monday, in order to keep prices strong, believe it or not.
Brent Crude Oil price fell by US$2.91 or 3.0% to US$92.83 a barrel, though the US Nymex crude oil price added 1 US cent or less than 0.1% to US$86.88 a barrel.
Base metals were mixed yesterday, with aluminium falling by 1.6% to a 17-month low as the strong US dollar and worries over economic growth overshadowed production cuts in Europe.
Tin fell by 1.9% but lead was up 1.0% and copper added 0.3%.
The gold futures price fell by US$9.70 an ounce or 0.6% to US$1,712.90 an ounce. Spot gold was trading near US$1,700 an ounce at the end of the US trading day.
Renewed Covid lockdowns in China are causing concern, with iron ore futures down 86 US cents or 0.9% to US$97.61 a tonne.