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The morning catch up: Australian shares set to fall; US closed for public holiday; Germany faces economic woes

Published 16/01/2024, 09:36 am
Updated 16/01/2024, 10:00 am
© Reuters.  The morning catch up: Australian shares set to fall; US closed for public holiday; Germany faces economic woes

Australian shares are expected to open lower, reflecting a downturn in European markets driven by Germany's economic struggles.

Germany's latest economic data, revealing a 0.3% contraction in the economy during October to December 2023, has heightened concerns.

The September quarter data, initially reported as a 0.1% decrease, was revised to show no change, narrowly averting a technical recession for Germany in the second half of last year.

US markets closed; Europe struggles

In the US, markets were closed on Monday for the Martin Luther King Jr. holiday, with trading set to resume today.

Meanwhile, the pan-European STOXX 600 index fell by 0.5%, with basic resources among the top declining sectors, dropping 1.0% as base metal prices were pressured by a stronger US dollar.

European markets retreated on Monday following comments from European Central Bank (ECB) officials, dampening expectations for rapid interest rate cuts.

ECB chief economist Philip Lane warned that cutting rates too swiftly could reignite inflation.

The news comes alongside Germany's GDP contraction of 0.3% in the fourth quarter, mirroring the decline for the entire year.

Additionally, China's central bank's decision to maintain its medium-term policy rate defied market expectations for a cut, further impacting investor sentiment.

Shift to rate cuts predicted

Jan Hatzius from Goldman Sachs (NYSE:NYSE:GS) predicts a shift in the rate-cutting cycle, with the first move expected from the Federal Reserve in March.

Despite a modest increase in global core inflation in December, the three-month annualised rate has slowed to 2.0%.

Goldman Sachs foresees a more cautious approach from the Fed, with only five cuts this year, compared to the six to seven cuts currently anticipated in market pricing.

Hatzius maintains an optimistic outlook on the US economy, projecting a 2.3% GDP growth, significantly above the 1.3% Bloomberg consensus, and a mere 15% chance of recession, contrary to the 50% consensus.

This positive view suggests a likelihood of gradual adjustment cuts rather than an aggressive easing campaign.

Currencies and commodities

US equity index futures indicated little change, with futures tied to major indices showing marginal movements. In currency markets, the Euro, Australian dollar and Japanese yen weakened against the US dollar.

Global oil prices saw a slight decrease with Brent crude and US Nymex crude experiencing marginal drops. Base metal prices were mixed in London trade, influenced by the strengthening US dollar and concerns over Chinese demand.

In precious metals, gold futures rose to US$2,059 an ounce, while iron ore futures in Singapore trade fell to US$132.88 a tonne.

Looking ahead, Australia's economic focus will be on consumer confidence surveys and overseas arrivals and departures data. Additionally, mining giant Rio Tinto (ASX:RIO) is slated to release a quarterly production update.

At a glance:

  • US markets closed.
  • ASX futures down 21 points or 0.3% to 7445 near 6.30am AEDT.
  • AUD -0.4% to 66.60 US cents.
  • Bitcoin +0.7% to $US42,959 at 6.32am AEDT.
  • Stoxx 50 -0.6%, FTSE -0.4%, DAX -0.5%, CAC -0.7%.
  • Spot gold +0.3% to $US2054.99/oz at 1.18pm in New York.
  • Brent crude -0.1% to $US78.18 a barrel.
  • Iron ore -1.7% to $US127.50 a tonne.
  • 10-year yield: US 3.94%, Australia 4.07%, Germany 2.23%.

What’s happening in small caps?

Making news this morning, which you can read more about throughout the day with Proactive:

  • FireFly Metals Ltd (ASX:FFM), formerly AuTECO Minerals Ltd, has announced "outstanding" high-grade copper and gold assays from its first drilling program at the Green Bay project in Canada.
  • Orthocell Ltd (ASX:OCC, OTC:ORHHF) today announced that as part of its board renewal program and following the appointment of Kim Beazley AC to the board, Matthew Callahan has resigned from the board.
  • Olympio Metals Ltd (ASX:OLY, OTC:COPGF) says assays from the first phase of aircore drilling on the Walloway Prospect have confirmed REE and niobium mineralisation in magmatic intrusives W2 and W6, which share characteristics with the nearby Walloway Carbonatite.
  • GTI Energy Ltd (ASX:GTR, OTC:GTRIF) welcomes experienced Denver-based ISR uranium technical and executive leader Matt Hartmann to the role of president US Operations, to oversee the company’s technical and commercial activities in the US.
  • Read more on Proactive Investors AU

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