Australian shares look likely to fall sharply on the back of bleak news out of the Anglophone world – and I don’t even mean the death of the legendary Tina Turner.
ASX Futures were pointing to a 43 point or 0.6% drop early this morning, while the Aussie dollar lost 1.2% against the greenback, ending overnight trade at 65.33 US cents.
A worrying UK inflation report sparked a sell-off in Europe, while in the US there was no movement on debt ceiling negotiations as the country continued to hurtle towards a default.
US default still looms
US Treasury secretary Janet Yellen once again sounded the warning that the country will run out of cash on June 1, now just seven days away.
To compound matters, minutes from the last Fed meeting indicated that policymakers were divided on the next interest rate move.
Against this volatile backdrop it’s no wonder that all three major indices in the US were pointing down – the Dow lost 0.8%, the S&P 500 did likewise (-0.8%) and the Nasdaq slumped 0.9%.
Bitcoin was trending down -3.8% to US$26,215 early this morning, while BHP (ASX:BHP) (-3.4%), Rio Tinto (ASX:RIO) (-0.2%), Tesla (NASDAQ:TSLA) (-2.0%) and Apple (NASDAQ:AAPL) (-0.3%) all posted losses.
European markets were also seeing red, with the Stoxx 50 (-1.8%), the FTSE (-1.7%), the DAX (-1.9%) and the CAC (-1.7%) all slumping.
UK inflation persists
News out of the UK Office for National Statistics might have had some bearing on this. UK inflation dropped back below 10%, but it wasn’t a sharp enough recalibration for economists and sparked some panic.
In particular, consumer prices rose 8.7% on last year. This was down from 10.1% in March, but higher than the expected 8.2%.
At a time when many in the UK are already struggling to stock their pantries, food prices were up 19.1% in April - only slightly lower than the 45-year high we saw in March (19.2%).
“The rate of inflation fell notably as the large energy price rises seen last year were not repeated this April, but was offset partially by increases in the cost of second-hand cars and cigarettes,” ONS chief economist Grant Fitzner said in a statement.
“However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs.”
Energy pain on horizon
And the pain for consumers doesn’t end in the UK – back home the Australian Energy Regulator has confirmed that electricity prices will rise between 20 and 25% in New South Wales, South Australia and south-east Queensland, affecting some 600,000 customers, on July 1. The increase is a direct result of inflation – like seemingly everything else at the moment.
This is lower than predictions made in September and October of last year, but that will be of little comfort to households and businesses.
The Victorian energy regulator is set to announce its pricing decision on Thursday.
In other news
Global oil prices rose again by 2% yesterday after US crude inventories posted a smaller-than-expected weekly drawdown of 12.5 million barrels to 455.2 million barrels as imports declined, according to the Energy Information Administration – an 800,000-barrel rise had been on the cards.
Brent crude rose by US$1.52 or 2% to US$78.36 a barrel, while US Nymex crude was up US$1.43 or 2% to US$74.34 a barrel.
Base metal prices crashed – copper once again confirmed its status as a bellwether, with copper futures were down 2.4% on continued weak Chinese demand and concerns about the current global outlook, while aluminium futures shed 1.1%.
Spot gold shed 0.7% to $US1,961.56 per ounce around the middle of the trading day, while iron ore was sitting at $US95.10 a tonne.