Markets improved slightly overnight as US investors bought up stocks after Monday’s fear-driven two-year dip.
It was a volatile day of trade on Wall Street but at close overnight, the Dow had added 0.1% to finish at 31,135, the S&P 500 gained 0.3% and the Nasdaq 0.7% to 11,720 – failing to make up for the steep losses the day before.
The ASX had its worst day in three months yesterday, but today is expected to follow the US lead and lift slightly, according to ASX futures, which had the index up 0.1% to 6,843 early this morning.
The Aussie dollar gained back some of yesterday’s losses overnight, trading at 67.45 US cents on a softer US dollar.
Data watchers will be tuned into the latest unemployment figures, set to drop later this morning.
PPI data slows month-on-month
US investors took solace in the wholesale prices data, which indicated that US producer prices had fallen for the second month in a row in August thanks to declining gas and goods prices.
The 0.1% drop in the producer price index (PPI) for final demand, on the back of the 0.4% drop in July, was the first month-on-month drop since 2020.
It seems the markets need to hear that the monetary environment is flattening out and will cling to anything.
The unfortunate bigger picture was that producer prices were up 8.7% on the year, and core PPI (ex-food and energy) rose by 0.4% and was 7.3% higher on a year ago.
And most observers are still tipping a rate hike of 75 to a whopping 100 basis points when the Fed next meets – so the recession fears continue to swirl.
Rates and recession
“Recession risks are obviously going up now that the Fed will likely need to take rates above 4%, but it is still unlikely we will see them take rates to the 5% level,” said OANDA senior market analyst Edward Moya.
“Today’s PPI numbers show that underlying trends are improving and that should lead to optimism that we will continue to see prices come down over the next few months.”
Moya did note, however, that the “Core PPI readings surprised to the upside just like CPI did yesterday.”
In Europe, things still look bleak, with markets falling once again based on fears about the US interest rate situation.
This was despite retail prices easing back to 9.9% from an eye-watering 10.1% in July – a 40-year high – in the UK because of a fall in petrol prices. Mind you, this is still higher than US inflation.
The pan-European STOXX 600 shed 0.9%, the Dax fell again, by 1.2%, and the FTSE was down 1.5%.
Energy watch
Oil prices rose as US inventories hit their lowest level since 1984. The International Energy Agency expects widespread switching from gas to oil for heating purposes, particularly in Europe for obvious reasons, saying it will average 700,000 barrels per day from October to March – double last year’s levels.
Brent crude lifted 1.0% or 93 US cents to US$94.10 a barrel, while US Nymex crude lifted by US$1.17 or 1.3% to US$88.48 a barrel.
“Oil is rebounding as China begins to ease some of their COVID lockdowns,” said Moya.
“The next major move in crude was always going to be triggered by the world’s biggest oil consumer and the loosening of lockdown restrictions should put a firm bottom in place. In addition to Chengdu’s easing of COVID restrictions, the White House is debating when they should refill the Strategic Petroleum Reserve (SPR).
“Crude prices seem poised to rally further now that the White House is focused on refilling reserves and not continuing to tap them. China remains the key for oil and as long as the COVID situation doesn’t spiral out of control, oil should continue to stabilise here.”
Indeed, while the International Energy Agency expects global demand for oil to come to a standstill later in the year, as the global economic slowdown deepens, it thinks that fuel demand will rebound next year.
Here in Australia, we are bracing for the lifting of the 25-cent fuel excise, which will again expose consumers to the full force of the current global headwinds.