The ASX will open flat this week, with ASX Futures hinting the ASX 200 will open 2 points lower, down 0.03%.
There’s no surprise in that.
Investors are bracing for a rate hike of between 0.75% and 1% delivered by the Federal Reserve this week.
No doubt it will be a painful week on Wall St.
Investors in Australia will also be dealing with a non-trading day on Thursday, the start of public school holidays, Grand Final holidays, Labor Day holidays next Monday and the queen’s funeral over the next 24 hours.
It could be one very quiet week, however, picking market movements lately has become quite the challenge and anything can happen.
Looking at market finishes, stocks in the US fell Friday after FedEx (NYSE:NYSE:FDX) Corp., down 21.40%, issued a profit warning that stirred fears of a global recession.
Major indexes booked large weekly losses, with the Dow Jones Industrial Average falling around 140 points, or 0.5%, to close at 30,822, after dropping more than 400 points at its session low. The S&P 500 ended 0.7% lower near 3,873, while the Nasdaq Composite dropped 0.9% to finish near 11,448.
The decline left the Dow down 4.1% for the week, while the S&P 500 saw a 4.8% weekly fall and the Nasdaq slid 5.5%.
Australian shares lost 2.1%, also on the back of fears about the Fed’s next rate move as it looks to curb inflationary pressures.
The S&P/ASX 200 Index ruled off the week at 6,747 points on Friday, down 1.4% for the session. The All Ordinaries fell by the same margin to 6,983.3 points.
Asian stocks headed for a fifth week of declines following more weakness in US equities and a surge in short-end Treasury yields that reflect bets for outsized Federal Reserve interest rate hikes.
Here’s what we saw (source Commsec):
- The Euro rose from near US$0.9945 to highs near US$1.0035 and was near US$1.0015 at the US close.
- The Aussie dollar rose from lows near US66.70 cents to highs near US67.23 cents and was near highs at the US close.
- The Japanese yen rose from 143.68 yen per US dollar to JPY142.84 and was near JPY142.91 at the US close.
- Global oil prices rose on Friday. Recession fears weighed on sentiment. News of an oil spill at Iran's Basra oil terminal supported oil prices.
- The Brent crude oil price rose by US51 cents or 0.6% to US$91.35 a barrel.
- The US Nymex crude oil price rose by US1 cent to US$85.11 a barrel. Over the week, Brent crude fell by US$1.49 or 1.6%. Nymex crude fell US$1.68 or 1.9%.
- Base metals were mixed on Friday. Lead, aluminium and zinc fell as much as 1.7%. Other metals rose by up to 4.9% with nickel leading the way. Over the week, metals fell except zinc (flat) and nickel (up 5.5%).
- The gold futures price rose by US$6.20 an ounce or 0.4% to US$1,683.50 an ounce. Spot gold was trading near US$1,675 an ounce at the US close. Over the week gold fell by US$45.10 or 2.6%. Iron ore futures fell by US$1.52 or 1.5% to US$99.06 a tonne. Over the week, iron ore fell by US$3.17 or 3.1%.
What to expect in Australia
Wealth Within founder and chief analyst Dale Gillham says, “What an interesting week it was for the All Ordinaries Index given that earlier in the week it continued to rise before falling 2.5% on Wednesday following the news that the Dow Jones had fallen nearly 4% the night before.
"When events like this occur, it is interesting to watch the knee-jerk reaction by investors making emotional decisions because they probably don’t understand that the only ones profiting from this is the big end of town.
“Right now, it is still possible that the market has not stopped falling, which is why I mentioned last week that investors should wait for confirmation before buying and the events that transpired this week have not changed my opinion.
“If the Australian stock market has bottomed, as I suspect it has, we will see it move up over the next month or so to erode most of the losses experienced this year. If the market moves up this week, then the probability of this occurring increases dramatically.
“For now, it is still wise to sit tight until we can confirm the direction of the market."
RBA says rate rises will help housing affordability
The Reserve Bank of Australia (RBA) is trying to put a positive spin on continued cash rate rises.
According to the Reserve Bank of Australia head of Domestic Markets Jonathan Kearns, any rate rises will help bring house prices down, noting that a 200 basis point increase would lower real housing prices by about 15% over a two-year period.
The numbers indicate how "sensitive housing prices are to interest rates".
New home buyers will be the beneficiaries.
"Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years as a result of higher interest rates," Kearns said.
"But after that, the declines in housing prices and mortgage size begin to dominate.
"This exercise obviously abstracts from the many other factors influencing interest rates and housing prices, but it suggests that because higher interest rates reduce housing prices and so mortgage sizes, mortgage payments for new borrowers could ultimately be lower than if interest rates had not increased."
Since May, the banks have passed on the full 225-point increase.