Recession fears returned to Wall St overnight as retail sales in December fell 1.1% (against 0.8% expected) and the Producer Price Index (PPI) declined 0.5% month on month versus the 0.1% that was expected.
The annual growth rate of the PPI fell from 7.3% to 6.2%. The core PPI (ex-food and energy) was up 0.1% in December. Annual growth of the core PPI eased from 6.2% to 5.5%. Industrial production fell 0.7% in December.
Wall St was further hit by Fed speakers Bullard and Mester’s call for more rate hikes in 2023, despite inflation and the economy slowing.
Fears in the US will spill into Australian markets today, with ASX 200 Futures down 31 points, as of 8:20am AEDT.
Yesterday, the ASX200 added 7 points (0.1%) to close at 7,394 in a quiet session, led by IT, Health Care and Consumer Discretionary sectors. Real Estate and Utility underperformed.
The good news was the index moved above 7,400 for the first time since last May.
Meanwhile, European markets continued their good run, supported by upbeat company earnings.
Mining stocks led gains, up 2.4%. The continent-wide FTSEurofirst 300 index lifted 0.3% but the UK FTSE 100 index dipped 0.3%, despite annual British consumer price inflation easing from 10.7% to 10.5% in December.
Here’s what we saw (source Commsec):
- The Euro rose from US$1.0766 to US$1.0882 and was near US$1.0790 at the US close.
- The Aussie dollar fell from US70.60 cents to US69.34 cents and was near US69.35 cents at the US close.
- The Japanese yen firmed from 131.48 yen per US dollar to JPY127.60 and was near JPY128.80 at the US close.
- Global oil prices fell around 1% on Wednesday as US recession fears countered a more positive China demand outlook.
- The Brent crude oil price dipped US94 cents or 1.1% to US$84.98 a barrel.
- The US Nymex crude oil price shed US70 cents or 0.9% to US$79.48 a barrel.
- The US copper futures price rose 0.3% to its highest level since June 2022 as speculators bet that low inventories and rising Chinese demand will lift prices.
- The US aluminium futures price lifted 0.6%.
- The gold futures price slid US$2.90 or 0.2% to US$1,907 an ounce.
- Spot gold was trading near US$1,904 an ounce at the US close.
- Iron ore futures rose US24 cents a tonne or 0.2% to US$121.19 a tonne on China growth optimism.
Federal Energy Minister Chris Bowen has defended the government's wholesale price cap on gas after the scheme was accused of “backfiring”.
Bowen told ABC Radio National the intervention was always going to take "some time" to have an impact on retail prices.
"We've been very clear that our intervention … in relation to the wholesale market will take some time to flow through but that is exactly as we would expect and I would expect, and hope, gas companies will simply just now comply with the law as good corporate citizens," he said.
Bowen said that while gas companies weren’t withholding supply, they were moving slowly as they took their time to understand the cap and avoid any breaches.
"If the gas companies say that they are simply just making sure they comply (with the price cap), I'm happy at this stage to take that on face value," Bowen said.
"And the government expects them, as the law provides, to supply gas at reasonable prices to Australian firms and individuals, and I expect that to be the case."
Bowen did clarify that Australians should not expect their bills to decrease in 2023.
"We've been very upfront. Our intervention was not about bringing prices down so much," he said.
"It was about ensuring that the increases were more in line with Australians’ expectations and the more standard increases that you would expect, that they would not be driven by elevated profits off the back of a war."
As if on cue, gas supplier Woodside has said it was not withholding supply.
Executive vice president of marketing and trading Mark Abbotsford told Sky News, “Every molecule that Woodside is producing out of southeast Australia and its projects in southeast Australia is finding its way into the southeast Australian market and being consumed in the southeast Australian market," he said.
"We don't have any available supply that we're holding back. We're putting every molecule we possibly can into the market and we're not only doing that today but we're also looking to do that in the medium and long term."
BoJ holds interest rates
The Bank of Japan held interest rates at -0.1% at its January meeting and maintained a target for 10-year JGB at ‘around’ 0% (with +/- 0.5% band).
City Index senior market analyst Matt Simpson said Japan’s economy was likely to recover towards the middle of the projection period, while high commodity prices and slowdowns with overseas economies would keep downwards pressure on the economy.
The CPI (all items less fresh food) was likely to remain relatively high over the near-term and inflation was expected to decrease around the middle of FY 2023.
The projected growth rates for 2022 and 2023 were somewhat lower than previously forecast, Simpson said.
“I’ve said it before, and I’ll say it again. The BOJ never go with the consensus expectations of their own meetings. If there are high expectations to act they tend to nothing, then surprise markets with a sudden change of policy when no expectations exist.
“Despite the hype – and to possibly spite the hype – they left their YCC target band unchanged, let alone tweak it or scrap it. They held interest rates at -0.1% which, to their credit, was expected, yet did not switch to an inflation target range as I had suspected.
"The biggest change I can see is they expanded the range of ‘eligible parties for the climate change funding scheme’, so overall a nothing burger ahead of the press conference.
“Perhaps the bigger surprise is that there were no dissenters, so all were on board with keeping policy unchanged at this meeting. It may even pour cold water on the expectation that Kuroda has any intention of wrapping up some of his policies before his successor takes the helm in April.
"So that leaves either an unscheduled policy change like we saw earlier this month, or Kuroda intends to go out with a bang at his last meeting on March 10.”