The Australian share market is likely to rise today on the back of a positive day on Wall Street.
ASX futures were up 52 points or 0.77% to 6,773 early this morning.
It was a mixed day of trade in the US, with stocks ending moderately higher as markets closed yesterday. The Dow put on 0.6%, the S&P 500 added 0.7%, while the Nasdaq gained 0.8%. Industrial stocks and banks led the gains.
The benchmark US 10-year Treasury note hit 3.5%, its highest point in more than a decade. The two-year Treasury note reached 3.9%, a 15-year high.
What will the Fed do next?
All eyes are on the Fed’s next two-day meeting, at which it is expected to raise interest rates by 75 basis points. Some analysts believe the lid could be 100 basis points. At any rate, the market has fully priced in a .75% rise.
A swathe of central banks around the world are set to examine and likely tighten monetary policy this week, with the Bank of England, along with the central banks of Sweden, Norway, Indonesia, Switzerland, Japan, South Africa, Brazil, Guatemala, Turkey, Taiwan, Egypt and the Philippines all holding meetings this week.
Most currencies were higher against the US dollar overnight. The Euro crossed the US dollar mark, going from around US$0.9967 to highs near US$1.0027 at the US close.
The Aussie dollar hovered from 66.70 US cents to around 67.28 US cents and was near highs at the US close. The Japanese yen rose from 143.62 yen per US dollar to JPY143.16 and was near JPY143.20 at the US close.
COVID is over
The World Health Organization (WHO) recently declared that the end of the pandemic is in sight, noting that deaths around the world from COVID are at their lowest level since March 2020, the month that most countries first entered lockdowns and established work-from-home orders.
While 2020 may be the year most remember as the pandemic year, the WHO notes that one million people died of COVID in the first eight months of 2022, and cautioned against complacency despite its declaration.
The WHO estimates that 19.8 million deaths were avoided in 2021 due to vaccination. Around the world, 12 billion doses have been administered.
President Biden echoed the WHO’s optimism, declaring COVID to be ‘over’.
While this might have given enthusiastic investors cause to reach for the chequebook, it didn’t play that way for Moderna. The vaccine developer’s shares fell 7.1%, once again proving there are winners and losers in every global circumstance.
Lowe weighs the evidence
The minutes from the RBA’s latest policy meeting will be released today at 11.30am AEST.
Governor Philip Lowe appeared before a House of Representatives Standing Committee on Economics on Friday and provided some insights into the bank’s deliberations.
Asked about the current global risks, Lowe drew a distinction between the situation in the US and Australia. He noted that wages in the US are growing 5 or 6% and will have to slow in order to match the target inflation.
“This will require a slowing in the US economy,” he said. “If the US economy slows that will affect the rest of the world.”
Lowe identified the opposite problem in Europe, where people’s real incomes have been cut by a great degree and this had affected household spend, making for a flat investment environment.
In China, where the zero COVID policy persists, supply chains continue to be impacted, as well as the domestic economy, because consumers are reluctant or unable to spend in an intermittent lockdown situation.
On a brighter note – for us, at least – he went on to say: “We’re in a much better position in Australia because wages growth is still consistent with the inflation target.”
“The fact that we’ve raised interest rates quite a lot already increases the strength of the argument for smaller increases going forward,” he said.
“We’re closer to a normal setting now, which means that the case for large adjustments in interest rates is diminished.”
Lowe reckoned that the next board meeting would address whether to raise in the order of 25 or 50 basis points.
“It will really come down to how we view the balance of these risks that we’ve been talking about: what’s going on in the global economy, how price and wage setting behaviour is adjusting here and how household spending is responding.”
In other news
Global oil prices rose by 0.7% yesterday, with Reuters reporting that output from OPEC+ oil producers fell short of quotas by 3.583 million barrels per day in August.
The usual suspects are affecting prices at the moment – fears of a global recession, a European gas supply crunch, fluctuations in the US dollar and the China COVID lockdowns.
Brent crude rose by 65 US cents or 0.7% to US$92.00 a barrel, while US Nymex crude was up by 62 US cents or 0.7% to US$85.73 a barrel.
Gold futures fell by US$5.30 an ounce or 0.3% to US$1,678.20 an ounce. Spot gold was trading near US$1,673 an ounce at the close of play in the US. Iron ore futures fell by 43 US cents or 0.4% to US$98.63 a tonne.
The London Metal Exchange was closed for Queen Elizabeth II’s state funeral on Monday so there are no updated base metal prices.