The Australian share market is poised to open lower after Wall Street’s bumpy ride overnight, with ASX futures down as much as 113 points or 1.62%.
Investors were spooked by the US Federal Reserve’s history-making rates call – another steep 75-basis-point increase that takes interest rates in that country to highs not seen since 2008.
The move indeed appears to make “75 the new 25”, as one commentator saltily quipped yesterday.
Staying ahead of the Fed
"In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the bank said.
And yet one of the issues analysts have with the US central bank’s current position is its lack of clarity.
On the one hand, the governor has hinted that the slowdown may be as imminent as the Fed’s next meeting, while on the other, he calls hopes of a pause on rate rises ‘premature’.
It seems that a pivot is going to require a slowing down of the economy across a range of indicators, including wage growth, job numbers, housing and rental prices, and this is a way off yet.
An ADP (NASDAQ:ADP) employment report indicated that 239,000 private-sector jobs were created in October, up on 195,000, indicating the economy is still trending in the wrong direction.
At any rate, the move has thrown the markets into disarray, with the Dow Jones down 1.6%, the S&P 500 down by 2.5% and the Nasdaq struggling the most, down 3.4%.
Lots of big names were in the red, including BHP (ASX:BHP) (-3.1%), Atlassian (NASDAQ:TEAM) (-10.1%), Apple (NASDAQ:AAPL) (-3.7%), Netflix (NASDAQ:NFLX) (-4.8%), Amazon (NASDAQ:AMZN) (-4.8%) and Tesla (NASDAQ:TSLA) (-5.6%).
Mid-terms loom under rates cloud
Unfortunately for President Joe Biden, inflation and interest rates are taking over as the talking points in the run-up to the mid-term elections, now just a week away. This turn of events will make retaining the House and the Senate an uphill climb for the incumbent party.
Only a month ago, the January 6th Committee and the Dobbs decision were putting democracy and reproductive rights on the ballot, which worked in Democrats’ favour, but these issues seem to be losing out to hip-pocket concerns.
According to a new CNN national poll, 51% of voters say the economy is the key issue determining their vote.
While employment figures and other domestic economic indicators have improved greatly under Biden, the prevailing winds – war in Ukraine, lockdown in China, continued supply chain issues and an energy crisis – are stealing the good news story from under him and his opponents are keen to use this to their advantage.
In other news
Major currencies were mixed against the greenback overnight. The Euro was hovering around US$0.9825 at the end of the day’s trade, while the Aussie dollar rose to near 65 US cents before settling back around 63.55 US cents.
Global oil prices rose by as much as 1.8% due to lower US oil inventories which saw crude oil stocks fall by about 3.1 million barrels last week.
Brent crude rose by US$1.51 or 1.6% to US$96.16 a barrel, while US Nymex rose by US$1.63 or 1.8% to US$90.00 a barrel.
Base metals were mixed with nickel up 2.3% but copper and zinc lost 0.7% and 0.2% respectively.
Gold futures rose by 30 US cents an ounce or less than 0.1% to US$1,650 an ounce, while spot gold was trading around US$1,636 an ounce at the US close.
Iron ore futures rose by US$2.07 or 2.6% to US$82.10.