Despite a positive lead from US markets overnight, the ASX looks set to open lower this morning, with the ASX SPI 200 Futures trading down 18 points (-0.24%) to 7,615.
Treasurer Jim Chalmers has defended the government's strategy to address inflation following the RBA’s decision to maintain interest rates for at least six months.
Speaking on ABC, Chalmers said despite the $100 billion wiped off the ASX this week, the government does not foresee a recession, yet noted “global economic uncertainty”.
"The way that the Reserve Bank forecasts and accounts for our cost of living help is the same way that the Treasury accounts for that, and the point that’s been lost since yesterday’s decision is that the Reserve Bank’s near-term inflation forecasts are better, not worse, and that’s because of the design of our cost of living policies," he said.
"What the ABS has shown in recent inflation data is that the way that we’re delivering our cost of living help is putting downward pressure on inflation, and that is our objective."
RBA at Senate Select Committee
RBA officials Sarah Hunter and Natasha Cassidy are speaking before the Senate Select Committee this morning, answering questions on cost of living pressures in Australia.
The pair confirmed the headline inflation rate from the June quarter, — which rose from 3.6% in March to 3.8% in June — was broadly in line with what the RBA was expecting.
They explained that rising mortgage costs weren't captured in existing inflation figures, but captured “in other ways”. Hunter said, "some people are facing very high mortgage costs. Individuals will certainly be feeling and seeing price rises in different ways.”
She said for some people right now "it's really tough", but that “We also hear from businesses and in our data that there are pockets of strength in the economy."
She reiterated that the board was focused on getting inflation down and it was paying attention to the whole economy, not just one part.
This question was posed to the RBA officials given recent market volatility sparked by fears a recession could be around the corner.
Commenting on this week’s market losses, she said, "The board are very mindful of what happened to markets in recent days.”
"We do expect the pace of the US economy to slow ... but we don't expect a recession as our base case," she said, but added, "We are mindful it could slow more sharply than we expect."
When asked whether the market overreacted to the US labour data and Japan's decisions to lift rates, the official said: "markets are innately volatile".
"...Markets will jump and will move quite a lot ...where this will end up over the next few weeks, we'll just have to wait and see."
Overseas markets
A sense of calm returned to US markets with the Dow Jones index up 294 points or 0.8%, the S&P 500 index gaining 1% and the Nasdaq index added 167 points or 1%, to snap a three-day stretch of losses.
A renewed wave of dip buying spurred a rally in stocks after a roughly US$6.5 trillion sell-off on Monday that shook markets around the globe.
The S&P 500 index climbed after its worst rout in about two years. The “fear gauge” — Cboe Volatility index (VIX) — sank the most since 2010.
- Nvidia jumped 3.8% to lead gains in chipmakers.
- Meta Platforms advanced 3.9%.
- The Bloomberg “Magnificent Seven” index and the Russell 2000 index of small firms both added 1.2%.
- Walt Disney (NYSE:DIS) rallied 2.5% on plans to raise prices of its streaming services.
- Caterpillar (NYSE:CAT) gained 3% on a bullish forecast.
- Uber rose 10.9% after the ride-sharing and food delivery provider beat market estimates.
US government bond yields climbed on Tuesday as fears that the US economy is quickly entering a recession were seen as overdone, while safe-haven demand for US bonds also ebbed as stock markets recovered.
San Francisco Fed president Mary Daly said the US labour market was "slowing but not falling off a cliff" on Monday. The US Treasury sold US$58 billion of 3-year notes at a yield of 3.81% into solid demand. The US 10-year Treasury yield rose by 11 points to 3.89%. The US 2-year Treasury yield lifted 9 points to 3.98%.
Helping sentiment was a rebound in Japanese stocks. The Nikkei 225 index posted its best day since October 2008, soaring 10.2% after a major unwind in the Japanese yen "carry trade" contributed to market volatility on Monday.
European sharemarkets also ended higher on Tuesday, after logging the steepest three-day decline since June 2022.
- The continent-wide FTSEurofirst 300 index rose by 0.3%,
- The UK FTSE 100 index gained 0.2%.
Technology was the top sectoral gainer, up 1.7%, led by semiconductor stocks such as ASM International, ASML (AS:ASML) and BE Semiconductor. Novo Nordisk (CSE:NOVOb) (NYSE:NVO) also rebounded with a 4.6% jump, its biggest one-day gain in nearly five months, ahead of the drugmaker's quarterly results on Wednesday. German factory orders increased by a more than expected 3.9% in June.
Currencies
Currencies were mixed against the US dollar in European and US trade.
- The Euro fell from US$1.0948 to US$1.0904 and was near US$1.0930 at the US close.
- The Aussie dollar rose from US64.73 cents to US65.41 cents and was near US65.20 cents at the US close.
- The Japanese yen firmed from 146.20 yen per US dollar to JPY144.06 and was near JPY144.35 at the US close.
Commodities
Global oil prices rose in volatile trade on Tuesday, bouncing off multi-month lows hit in the previous session, as investor attention turned to supply tightness and financial markets recovered from their recent slump.
- The Brent crude price rose US18 cents or 0.2% to US$76.48 a barrel.
- The US Nymex crude price added US26 cents or 0.4% to US$73.20 a barrel.
Base metal prices rose on Tuesday.
- Copper futures gained 0.7% and
- Aluminium futures lifted 2.2% as comments by US central bankers helped to ease fears about a potential recession.
The gold futures price eased US$12.80 or 0.5% to US$2,431.60 an ounce on Tuesday on US dollar strength and higher US bond yields. Spot gold was trading near US$2,389 an ounce at the US close.
Iron ore futures slipped US$1.32 or 1.3% to US$102.86 a tonne on Tuesday as wider losses induced production cuts among steelmakers in China and lingering high portside inventories weighed on sentiment.
What’s on?
In Australia, selected living cost indexes are released. Arcadium Lithium issues earnings and Pacific Smiles trades ex-dividend. RBA officials Sarah Hunter and Natasha Cassidy appear before the Senate Select Committee.
The New Zealand jobs report is due with China trade data. US consumer credit data is issued. CVS Health (NYSE:CVS), Disney, Lyft, Novo Nordisk, Occidental Petroleum (NYSE:OXY), Robinhood (NASDAQ:HOOD) and Shopify all issue earnings.
What’s happening in small caps?
The S&P/ASX Small Ordinaries ended 0.88% higher yesterday, as the ASX200 closed up 1.26%.