It’s not a great week for investors of a sensitive disposition, with the ASX poised to fall today on the back of fears of more rate hikes from the RBA and the US headed for a potential June default disaster thanks to another debt ceiling drama on Capitol Hill.
ASX futures were down 22 points or -0.3% to 7,232 early this morning.
On Wall Street, only the Nasdaq was in the green, up 0.2%, while the S&P 500 lost 0.2% and the Dow 0.7%, with retail data still looking weak, rising by only 0.4% in April.
Capitol drama curtails Biden visit
There was consternation in Canberra this morning on the news that Joe Biden would be cutting short his foreign trip, including his attendance at the planned Quad meeting in Sydney, because of the need to attend to an urgent domestic matter.
That matter is, of course, the fact that the US is barrelling towards a June 1 deadline to raise the debt ceiling. If negotiations fail with Kevin McCarthy’s House Republicans, this is the date on which the Treasury Department says the US will begin defaulting on its $US$31 trillion (A$46.6 trillion) debt. To say this would unleash global economic turmoil is an understatement.
It’s a terrifying but not unfamiliar scenario in modern times, though the last couple of threats by Republicans under Democratic administrations – Obama in 2011 and Biden in 2021 – have been averted. This time could be different.
McCarthy, presiding over an unruly Republican-dominated House, is demanding tax and spending cuts in return for support to raise the debt ceiling, in a suite of proposals representing a 47% cut in non-military discretionary until 2033.
Biden says that the debt ceiling cannot be held hostage by budget negotiations – but it certainly feels as if it is.
Treasury secretary Janet Yellen warned that a recession was imminent if representatives couldn’t conclude a deal. “It is essential that Congress act as soon as possible,” she said in comments yesterday.
“In my assessment – and that of economists across the board – a US default would generate an economic and financial catastrophe.”
While Biden’s decision to address his own domestic nightmare is understandable, his absence from the Quad meeting has embarrassed the Albanese government. The PM said he hoped the meeting might still proceed with a stand-in from the Biden Administration joining India’s Narendra Modi and Japan’s Fumio Kishida.
Wages growth, housing market threaten rates
Back home, today’s wage figures will be the key to another rate hike in June. While the markets are pricing in an optimistic 12% chance of a June rise, the chance of a rate rise by August has much stronger odds – 58%.
The minutes from the RBA’s last meeting have cast a pall over the next couple of months, with the central bank suggesting that the cash rate needs to be higher than 3.85% to tame inflation and noting that a rapidly recovering housing market – which it sheeted home to increased migration and tight rentals – is not helping matters.
In other news
Global oil prices fell by 0.4% on Tuesday following weaker-than-expected economic data out of China and the US, which dampened predictions of higher global demand from the International Energy Agency (IEA).
Brent crude fell by 32 US cents or 0.4% to US$74.91 a barrel, while US Nymex crude dropped 25 US cents or 0.4% to US$70.86 a barrel.
Base metal prices were mixed yesterday, with copper futures down 2.2% following data that suggested China’s recovery is losing steam. Aluminium bucked the trend, up 0.4%.