The ASX is set to start the day’s trade lower today, with ASX 200 Futures down 14 points, or 0.2%, to 6,893 early this morning. The dollar also fell 1.5%, to 69.2 US cents.
There were losses on Wall Street overnight, with the Dow leading the charge (-1.2%), and real estate was the worst performing sector. The S&P 500 (-0.7%) and the NASDAQ (-0.2%) also slipped.
Jobs data softening in US
A report from the US Labor Department showed job vacancies dropped by 5.4% in June, one of the first signs of a weakening job market.
This may indicate that inflation containment might be working – but it’s also a sign that a recession is in the post. Investors are now watching to see if they’ve priced in all the rate rises the Fed has up its sleeve, following another steep 0.75% hike in July.
Preying on investor minds will be a new ingredient in the inflation-recession-energy-war mix – Speaker of the US House of Representatives Nancy Pelosi’s overnight visit to Taipei, which has set US-China relations on edge.
Pelosi is the highest-ranking US official to visit Taiwan in 25 years, drawing China’s ire at a time when global tensions are high and there are fears that ally Russia’s aggression in Ukraine has set the framework for its immediate intentions for the small Asian democracy.
European electricity prices up
The mood in Europe was similarly flat. The pan-European STOXX 600 was down by 0.3%, the Dax eased by 0.2% and the FTSE was flat at 0.1%.
Europe’s extreme heat and drought has pushed European electricity prices to new highs, with a challenging winter on the horizon.
In France, river water has been too warm to be used to cool nuclear plants, while in Germany, water levels on the Rhine are too low to carry coal to power stations. This makes countries even more reliant on gas – and therefore Russia – to meet extra power demand.
The heat is having an impact on agricultural output too, with forest fires in France hitting farmers hard.
In better news from the continent, the first shipment of grain from Ukraine since Russia invaded six months ago has left the black sea port of Odessa, bound for Turkey and Lebanon.
The ship, carrying 26,000 tonnes of corn, was escorted through heavily mined waters. It signals hope for the many millions of people who rely on food grains from the besieged nation-state.
Borrowing pain sees house prices fall
In Australia, the big kick to the economy and the markets was the RBA’s announcement that it would lift the official cash rate to a six-year high of 1.85%, having moved interest rates by 50 basis points for the fourth time in as many months.
The Macquarie Bank is thus far the only bank to have passed on the rate rise in full, but market realities tell us others will follow.
The housing market is responding accordingly to the rate pain. “Housing prices in July fell at the fastest pace in 40 years, consumer confidence is back to GFC levels and the rate of consumer spending is slowing,” City Index market analyst Tony Sycamore said.
“Whether by enough to offset an expected rise in inflation to 7.75% by end-22 remains to be seen.
“Our base case remains for a fourth consecutive 50bp rate hike in September, followed by a 25bp rate hike in October or November, which will take the cash rate to 2.60%, and into mildly restrictive territory before year-end.
“The RBA is then likely to pause to allow time to assess the full impact of the rate hiking cycle on inflation, growth and labour market data.”
In other news
Global oil prices are back up ahead of the OPEC and oil producers meeting today. Brent crude crossed the US$100 threshold once again, rising 0.5% to US$100.54 a barrel, while US Nymex crude rose by 0.6% to US$94.42 a barrel.
Base metals were down by 0.2 to 4.6% on Tuesday, with bellwether copper down the least and nickel down the most.
Gold futures were up by US$2.00 an ounce or 0.1% to US$1,789.70 an ounce and spot gold was trading near US$1,762 an ounce as the US markets closed, while iron ore futures fell by 12 US cents or 0.1% to US$114.74 a tonne.