The ASX is expected to rise today, with ASX 200 futures 0.4% higher at 7,310.
The market hit a wall yesterday, falling 57 points (-0.77%) to close at 7,308. The Energy (-4.24%), Materials (-1.12%) and Financial (-0.71%) sectors were the worst hit. Communication (+0.25%) and Health Care (+0.25%) were the only two sectors to close higher.
“Yesterday’s sell-off was the result of a hawkish testimony from Fed chair Powell, who opened the door for a 50bp rate hike in March - in direct contrast to the dovish tones from RBA governor Philip Lowe, who yesterday opened the door to a pause,” IG Markets analyst Tony Sycamore said.
“This raises the thought; would the RBA have been quite as dovish if they had known that Fed chair Powell would be so hawkish just 12 hours later?"
A rise today would follow a generally stronger showing on Wall St, with the S&P 500 closing 0.1% higher, the Nasdaq Composite Index 0.4% to the green, but the Dow Jones Industrial Average index shedding 0.2%.
Fed chair Jerome Powell continues to address Congress, with Wall St not quite sure which way to go based on his testimony.
Powell discussed how February hiring and inflation figures that are due over the next week could affect the next rate decision.
The Fed will meet on March 21-22 to discuss the current situation, with one economic report already indicating a hot labour market will put pressure on rates.
Investors are also keeping an eye on China’s inflation update this week.
Here’s what we saw (source Commsec):
- The Euro rose from US$1.0524 to US$1.0571 and was near US$1.0545 at the US close.
- The Aussie dollar fell from US66.28 cents to US65.82 cents and was near US65.90 cents.
- The Japanese yen firmed from 137.88 yen per US dollar to JPY136.49 and was near JPY137.30.
- Global oil prices fell by around 1% on Wednesday as fears that more aggressive US interest rate hikes would pressure oil demand outweighed a larger-than-expected draw in US crude stocks. US government data showed that crude stocks drew 1.69 million barrels last week, compared with estimates for a build of 395,000.
- The Brent crude oil price fell by US63 cents or 0.8% to US$82.66 a barrel.
- The US Nymex crude oil price shed US92 cents or 1.2% to US$76.66 a barrel.
- Base metal prices were mixed. The copper futures price rose by 1.4% amid signs of limited supply and a weaker US dollar. But the aluminium futures price dropped 0.1%.
- The gold futures price fell by US$1.40 or 0.1% to US$1,818.60 an ounce.
- Spot gold was trading near US$1,814 an ounce at the US close.
- Iron ore futures rose by US4 cents or less than 0.1% to US$127.37 a ton as investors weighed data that suggests China's steel consumption remains slow.
According to T. Rowe Price chief US economist Blerina Uruci, current economic data suggests the US is a long way from a recession.
Uruci notes that accelerated economic growth in the second half of last year, along with data released so far in 2023, solidifies the case that a US recession is not imminent.
“I think that the key to the US economy is the consumer. And data from credit card spending and retail sales for January show a couple of things: Consumers are willing to spend, and they appear to have the runway to do so through a combination of a resilient labour market and relatively healthy balance sheets and credit.
"These two factors could prove to be a very important source of growth in 2023. In addition, the recent decline in mortgage interest rates could also help mitigate some of the recent weakness in the housing market. It could also support the housing market in the key spring selling season.”
While Uruci does point to pockets of softness in the US labour market at the end of last year, the market itself remains resilient.
“Wage growth has eased from last year’s peak, which is a welcome relief for the Fed. However, it is not yet consistent with the central bank achieving its 2% inflation target. For this reason, policymakers will be sensitive to any reacceleration in job growth because this could stall the recent progress that we’ve seen on inflation,” Uruci said.
“Consumer price inflation appears to have peaked. But this progress has been somewhat uneven across the major components, and for the Fed, I think they are looking for broadly based improvement in order to feel comfortable that inflation will be on a sustained downward trend.
“We expect less forward guidance from the central bank compared with last year, when it became evident that the Fed was behind the curve and it needed to raise interest rates expeditiously.
“The Fed is now increasing interest rates at a much slower pace, a quarter percentage point per meeting. And monetary policy is firmly in restrictive territory.
"Over the coming months, we expect the Fed to continue increasing interest rates at this slower pace and for the terminal rate to be above 5%. However, the focus for the Fed will be to hold a restrictive policy for as long as is needed to lower inflation.”
Federal budget approaching
The Federal budget will be delivered in just a couple of months and given Australia’s current economic conundrum, it is expected to be one of restraint.
That’s certainly the word coming from the Albanese Government.
“We’re dealing with a whole range of things – terminating measures, increasing pressures and are looking for savings," Minister for Finance Katy Gallagher told ABC RN Breakfast.
“We don’t want to make, through budget decisions, the inflation problems worse. So yes, we have a responsibility to make sure that the spending we do is quality spending. It’s investing in the productive side of the economy.
“I can absolutely say to you that Jim and I are determined to be responsible in terms of budget. We’ve got a massive job to do. And that will require showing restraint because of this inflation pressure within the economy."