The ASX looks set to start the day in the red, mirroring flat sentiment in the US.
ASX futures were down 1 point, to 7,470, at around 7am this morning on the east coast.
Wall Street continued to shed points following recent losses, with the Dow (-0.1%), the S&P (-0.6%) and the Nasdaq (-0.9%) all ending flat overnight.
With some notable exceptions, like Tesla (NASDAQ:TSLA) (+2.5%), big names – BHP (ASX:BHP) (-1.7%), Rio (-1.2%), Apple (NASDAQ:AAPL) (-1.7%), Amazon (NASDAQ:AMZN) (-0.9%) and Alphabet (NASDAQ:GOOGL) (-1.7%) – saw losses across the board.
European markets closed lower yesterday, retreating from nine-month highs, on the back of the near-universal fear that central banks are nowhere near finished with the rate hiking cycle. The rate-prone technology (-1.9%) and real estate (-2.1%) sectors were down as a result.
More rate pain expected
In what has become an all-too-familiar monthly scenario, the RBA will meet today and deliver its latest decision on rates at 2:30pm AEDT, when it is widely expected to lift the cash rate by at least a quarter of a per cent.
Economists are at a loss to predict when the rout will end but most concur that the slowdown in consumer spending and business confidence might finally be grinding into gear.
“While there are early signs that consumers are now starting to reduce spending, and businesses are far less optimistic about the year ahead compared to 2022, the RBA clearly wants to see some sustained evidence of a cooling economy before pausing any further cash rate increases,” said CreditorWatch chief economist Anneke Thompson.
“What the RBA does next will depend heavily on January’s retail trade result. The December result showed a marked slowdown in consumer spending in all categories and states, with sales falling 3.9% month on month.
“Inflation also appears to be moderating and we should see further drops in the rate of price growth as data is now being measured off 2022 figures when price rises had already kicked in.
“Another factor that will be key to the RBA board’s decision-making is business confidence and conditions. Here, NAB’s keenly observed monthly survey shows that business optimism is now dropping, after six months of plummeting consumer confidence. Business conditions fell by eight points in December, the third successive month of falls.
“Business confidence did improve slightly, but there is still a wide gap between conditions and confidence. Capacity utilisation is also falling. This is a very good lead indicator of employment conditions and gives us further evidence that the unemployment rate is probably going to rise throughout 2023, albeit moderately.
“Overall, it appears the RBA’s efforts to slow the economy and cool inflation are working. How quickly and deeply this ‘cooling’ is felt by businesses will be key to determining what happens next to the cash rate.”
US jobs at strongest levels since the sixties
You’d think the latest US unemployment data would provide the good news story President Joe Biden needs to improve his polling, but the timing couldn’t be worse.
US unemployment figures released by the Bureau of Labor Statistics on Friday show that the jobless rate is down 0.1% to 3.4% – the lowest since May 1969 – with a staggering 517,000 people hired in the month of January.
On top of this, the average wage has risen 0.3% to 4.4%.
Unfortunately, these figures will only add to an overheated economy, at a time when Powell and his colleagues at the Federal Reserve are looking for signs they can take the foot off the pedal.
Powell’s predecessor Janet Yellen poured scorn on the idea: “You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years,” she said during a TV appearance.
European diesel stockpiling pays off
Meanwhile, in Europe, there is a rush on Russian diesel fuel before a ban comes into effect this month. In January, European countries bought up nearly 8 million barrels of Russian diesel, says energy data provider Vortexa, roughly on par with imports this time last year before Russia invaded Ukraine.
European imports of the carbon-intensive fuel in the fourth quarter of 2022 were up nearly 19% on the same period the previous year.
Europe has been struggling with energy sovereignty since Russia invaded Ukraine last year and has been trying to wean itself off Russian oil and gas.
The stockpiling has led to diesel futures prices in the bloc falling 1.6% on Monday, adding up to a 20% loss over the last fortnight as demand has dropped off. This will be a relief to diesel-dependent businesses on the continent, where 96% of trucks still run on the fuel.
In other news
Major currencies were weaker against the greenback overnight.
The Aussie dollar fell from highs near 69.47 US cents to lows near 68.55 US cents and was near 68.85 US cents at the US close. The Japanese yen eased from near 131.58 yen per US dollar to around JPY132.89 and was near JPY132.60 at the US close.
Global oil prices advanced over 1% yesterday on the back of competing concerns – the return of Chinese demand against fears that inflation-crushing measures in global economies would constrict demand.
Brent crude was up US$1.05 or 1.3% to US$80.99 a barrel, while US Nymex crude added 72 US cents or 1% to US$74.11 a barrel.
Base metal prices slumped in yesterday’s trade. Copper futures were down by 0.5% on recession fears and concerns about US-China tensions.
Aluminium futures were down 1.4%, though this slide was arrested on reports that the US is preparing to impose a 200% tariff on Russian-made aluminium.