The ASX is poised to open higher when the markets open today, following a healthy day’s trade to wrap up an otherwise bleak quarter for Wall Street.
The US markets were led by strong energy stocks, with the Dow Jones rising by nearly 3%, while the S&P 500 added 2.9% and the Nasdaq gained 2.7%.
While fossil fuels were up, EV giant Tesla (NASDAQ:TSLA) was one of the few mega caps deeply in the red, shedding 8.6%. Reuters noted that it sold "fewer-than-expected vehicles in the third quarter as deliveries lagged way behind production due to logistic hurdles".
In Europe, it was a similar story, with the FTSEurofirst 300 index up by 0.7% and the UK FTSE 100 weakly up by 0.2%, again buoyed by the energy sector.
Of course, back home the interest rate storm clouds are again gathering, with the Reserve Bank due to meet today to raise rates for a sixth straight month, in all likelihood.
Experts tip 50 basis point rise
“Last month, we predicted the Reserve Bank of Australia (RBA) would again hike 50 basis points (bps) at the October meeting and see no reason to deviate,” said analysts T Rowe Price.
“Shortly after the September release, we applauded the suggestion by Governor Lowe that they were open to a step back to 25bps. However, the subsequent macro environment makes a 25bp hike potentially burdensome.
“Global inflation is running extremely high, the US Federal Reserve has increased its 2022 year-end rate projection by an additional 100bps in just three months. In response, the Australian dollar has suffered.
“While the RBA has noted a preference for a weaker Australian dollar, it’s now approaching tenuous levels which somewhat forces the hand of the RBA.
"Domestically, data continues to perform with a strong labour market and higher consumer confidence levels. On the housing front we note the continued decline in prices but the rebound in auction clearing levels suggests all is not dire.
“While it may not seem like it to the average Australian, compared to global peers, Australia is in a very good place. We anticipate the RBA alludes to the difficulties of the macro environment while noting the strength of the local economy – while hiking 50bps.”
Governments reckon with tax cuts
What can governments do to stem the rising tide of inflation? Not what Liz Truss is doing, seems to be one of the few consensus positions.
Just last week the new PM sent the pound into freefall and the Bank of England scrambling to shore up government bonds when she announced a package of £45 billion tax cuts for the very wealthy – including scrapping the highest rate of income tax for top earners from 45% to 40% and an increase in government borrowing.
The move was roundly criticised by economists and precipitated the Bank of England intervening last week, announcing that it would buy UK government debt “on whatever scale is necessary” to stop a bond market crash.
Following the fallout over Truss’ ‘mini budget’, the Chancellor of the Exchequer Kwasi Kwarteng announced on social media that the government was listening and would perform a U-turn on the proposed package. But the Tory party wasn’t having any of it, threatening revolt, and Truss has since doubled down on the tax cuts.
It appears the Australian Government is also likely to dig its heels in on tax cuts that were planned before the last federal election to come into effect in 2024.
The Minister for the Environment and Water Tanya Plibersek, speaking on ABC breakfast radio this morning, refused to be drawn on whether the tax cuts would still be a good idea in the current economic environment.
Oil dragging markets up
Global oil prices rose by as much as 5.2% yesterday and OPEC+ oil producers are expected to contribute to the strong market showing when they meet tomorrow to discuss a proposal to reduce output by 1 million barrels per day.
The weaker US dollar contrived to support oil prices, boosting the purchasing power of everyone outside of the US.
The benchmark Brent crude was up by US$3.72 or 4.4% to US$88.86 a barrel, while US Nymex crude oil price gained US$4.14 or 5.2% to US$83.63 a barrel.
Base metal prices were down by 0.5-2.8% on the London Metal Exchange. Tin led the charge, while zinc was down the least. Aluminium and nickel gained value, rising by 2.6% and 0.6% respectively.
The gold futures price rose by US$30 an ounce or 1.8% to US$1,702 an ounce, spot gold was trading near US$1,697 an ounce at the end of the day and iron ore futures slumped by US$1.08 or 1.1% to US$94.22 a tonne.