The ASX is set to fall today, with ASX futures pointing to a 1.3% slide.
The dip comes as no surprise as Wall St was battered harder than the Sydney Swans on AFL Grand Final day on Saturday.
All the major US indices revisited their June lows and the S&P 500 has now lost all the gains it had made in 2021.
The S&P 500 was down 2.94%, the Dow Jones crumbled 2.75% and Nasdaq lost 3.02%.
“Only 3.6% of S&P 500 components are above their respective 50-day moving average currently. This was more than 90% as recently as August 18. This is a fair test of the June lows when the readings were 2.0% on June 16 and 2.2% on June 17,” CFG Wealth Management chief investment officer Jonathan Harrier said.
Markets fell on the expected 0.75% rate hike delivered by the Federal Reserve – a third straight jumbo hike.
“Recession risks have increased and no one wants to be the last one out squeezing out through the door,” Avitas Wealth Management managing principal and chief investment officer Russell Evans told MarketWatch. “The market is rushing to get ahead of what the market sees as being inevitable.”
Fed Chair Jerome Powell has also stated the fight against inflation is yet to be finished, which led the market to abandon its belief in a soft landing for the US economy.
“People interpreted this week’s action and rhetoric as more hawkish,” Evans said.
The US isn’t alone in hiking rates. US equity traders are also keeping a keen eye on the UK, where markets have been roiled by the latest hike from the Bank of England.
“We’ve got new tax cuts in the UK, which might prompt even more rate hikes from the Bank of England,” Charles Schwab (NYSE:NYSE:SCHW) chief global investment strategist Jeff Kleintop said.
“The UK tax cuts are likely to pump more money into the economy, which is likely to create more demand and further fuel inflation,” Kleintop said.
"That, in turn, may prompt the Bank of England to hike rates even higher at a time when investors are worried that the tightening of monetary policy by central banks is increasing the risks of a global recession,” he said.
Meanwhile, oil prices collapsed to levels not seen since January this year, leading the Energy sector to fall 6.75%.
It’s bad news all around.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$0.9837 to lows near US$0.9668 and was near US$0.9690 at the US close.
- The Aussie dollar dipped from highs near US66.32 cents to lows near US65.12 cents and was near US65.25 cents at the US close.
- The Japanese yen fell from near 142.09 yen per US dollar to JPY143.46 and was near JPY143.30 at the US close.
- Global oil prices fell by around 5% on Friday to 8-month lows on fears that rising interest rates will tip major economies into recession, cutting demand for crude. The Brent crude oil price fell by US$4.31 or 4.8% to US$86.15 a barrel.
- The US Nymex crude oil price slid by US$4.75 or 5.7% to US$78.74 a barrel.
- Oil fell for a fourth straight week with Brent down by US$5.20 a barrel or 5.7%. The US Nymex dropped by US$6.37 a barrel or 7.5%.
- Base metal prices slumped on Friday amid mounting concerns about demand, especially in crisis-hit Europe. Tin dropped 6.7% with aluminium (-5.3%) recording a fourth straight weekly decline.
- The gold futures price shed US$25.50 an ounce or 1.5% to a 2½- year low of US$1,655.60 an ounce. Spot gold was trading near US$1,643 an ounce at the US close. Gold slid US$27.90 an ounce or 1.7% over the week.
- Iron ore futures rose by US6 cents or 0.1% to US$98.89 a tonne. For the week, iron ore slid US37 cents or 0.4%.
Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia this week.
1. AU Retail Sales. Are we still spending?
On Wednesday this week, retail sales data for September will be released. This will be another key data point that the RBA will be watching, and it will once again give us further insight into the mind of the Australian consumer.
Last month, retail sales rose by 1.3%, marking the strongest retail trade pace since March. In 2022 consumers have been resilient to the rising cost-of-living pressures, and this new data will likely show that retail sales were strong once again.
However, this isn’t something that can be sustained indefinitely. Consumers will soon feel the RBA's financial tightening pressures, but if you've been out on a sunny day in Sydney during September, you'll know this isn't happening just yet.
2. US Q3 earnings start again. Yes, they’re here already!
It seems like only yesterday that we were wrapping up a relatively strong Q2 earnings season in the United States, but Q3 earnings are already upon us. The big name to watch this week will be Nike (NYSE:NKE).
These earnings are another great way for investors to read what the consumer is doing, given that Nike is the largest sports apparel brand in the world. Nike has had a difficult year with supply chain issues and rising inflation, but its strong brand presence has kept sales healthy. Its direct-to-consumer strategy is accelerating, laying the groundwork for further long-term growth.
However, the short-term headwinds moving into this latest report, including sales volatility in China, currency headwinds, and excess inventory, will make for a challenging quarter. Expectations are for earnings of US$0.92 and revenue of US$12.29 billion.
3. US PCE Inflation: Clues for another hike.
Last week, the US Federal Reserve lifted interest rates by 75bps, with US inflation remaining elevated. This week we will receive another critical reading on inflation, with the core personal consumption expenditures (PCE) price index for August being released on Friday.
This reading has been falling since it peaked in February this year at 5.3%. Last month’s reading for July showed PCE fell to 4.6%, the lowest level for 2022.
PCE inflation is one of the most watched data points by the Fed as it is said to be less volatile and more accurate than CPI. Estimates for this month’s reading are set to show an increase to 4.8%, which could sway the Federal Reserve towards another 75bps at its next meeting with only two rate decisions left this year, which could influence any further increases by our own RBA.