The ASX is set to fall this morning as China goes into lockdown mode amid another major COVID-19 outbreak, which has slumped demand for commodities including iron ore and coal.
News of the lockdown sent iron ore plummeting nearly 10% to around $135 a tonne, while oil lost nearly 5%, with US crude slipping below $100 a barrel and gold falling. below $1,900 an ounce.
ASX futures were down 25 points or 0.3% at 7,298 around 07:00 AEST; they had previously fallen more than 130 points.
On Wall St, stocks rallied from early losses to end higher.
All three major U.S. stock indexes closed higher as Treasury yields fell and investors appeared to ignore concerns about China’s COVID-19 lockdown.
The Nasdaq Composite led the way with a 1.3% gain, followed by the Dow Jones Industrial Average, which finished up 0.7%. The S&P 500 closed with a modest gain of around 0.6%, with mixed results across its 11 sectors.
Information technology and communication services posted the largest gains in the S&P 500 index, while energy was the worst performing sector.
Twitter rose after accepting a takeover offer from Elon Musk and several big tech earnings are set to determine sentiment this week, including Apple and Microsoft.
More on Twitter shortly.
Here is what we saw (source Commsec):
- Currencies were mixed against the US dollar in European and US trade. The Euro fell from a high near US$1.0775 to a low near US$1.0700 and was around US$1.0715 at the US close.
- The Australian dollar fell from a high of nearly 72.00 US cents to a low of nearly 71.35 US cents and was near 71.75 US cents at the close in the United States.
- World oil prices fell about 4% on Monday. Investors are worried about global energy demand given the ongoing COVID lockdowns in China and the potential for higher interest rates in the United States.
- The price of Brent fell US$4.33 or 4.1% to settle at US$102.32 per barrel.
- The price of US Nymex crude fell US$3.53 or 3.5% to settle at US$98.54 a barrel.
- Base metal prices fell 1.4 to 6.1% on Monday, with nickel down the least and zinc down the most.
- The gold futures price fell US$38.30 or 2.0% to settle at US$1,896 per ounce.
- Spot gold was trading near US$1,897 per ounce at the close in the United States.
- Iron ore futures fell US$3.56 or 2.3% to settle at US$149.73 a tonne.
Are we headed for a recession?
UBS warned that Australia could slide into recession if interest rates were raised too quickly.
The Reserve Bank of Australia (RBA), which is due to meet next Tuesday, has already hinted that it could accelerate interest rate hikes from May.
The money market is currently forecasting 309 basis points of RBA rate hikes over the next 12 months, with the cash rate expected to reach 2.42% by the end of 2022 and 3.19% by May 2023.
Any increase of this magnitude could push variable mortgage rates above 5% from the current 2%.
This number means a service rate of more than 8%.
Although the RBA is expected to hike rates next month, Westpac’s Bill Evans predicts the central bank will implement a 40 basis point hike in June.
UBS Australia chief economist George Tharenou expects a 15 basis point hike in June or possibly May.
Tharenou believes that core inflation, which Bloomberg said is expected to reach 1.2% quarter-on-quarter and 3.4% year-on-year – the highest level since mid-2009 – “is well above implicit forecasts. of around 3% and would mean that underlying inflation has already exceeded the RBA’s expected peak of 3.25% in the June quarter.
Tharanou believes the trimmed average CPI would peak above 3.5% in the June quarter. “This is a hawkish development for the RBA cash rate outlook, at least relative to our dovish view; although we still think market prices are too aggressive at around 2% this year and 3, 25% next year, because it could cause the housing market to fall and cause a recession,” he said.
UBS expects the first 15 basis point hike to 0.25% to be delivered in June.
“Having said that, the risk is that the more aggressive 50 basis point hikes from global central banks suggest the RBA could move faster,” Tharenou said.
“However, one caveat for the RBA is the decline in consumer sentiment in April.”
Musk secures Twitter
Elon Musk can now run his own social media network after Twitter’s board agreed to a $44 million ($54.20 per share) buyout of the listed company.
Once the deal is finalized, Twitter will be run as a private company.
One thing Musk will do is encourage tweets about free speech, “I hope even my worst critics stay on Twitter because that’s what free speech means.”
The world’s richest man informed the world that he had $46.5 billion to buy Twitter on April 14.
Just over 10 days later, Twitter accepted the offer.
The news sent Google into crisis on Monday with more than 200,000 searches for “Elon Musk Twitter”.
Musk plans to crack down on bot and spam accounts and introduce an edit button, which has been on users’ wish lists for some time.
“Free speech is the foundation of a functioning democracy, and Twitter is the digital public square where issues vital to the future of humanity are debated,” Musk said in the statement announcing the deal.
“I also want to make Twitter better than ever by improving the product with new features, making algorithms open source to increase trust, defeating spambots and authenticating all humans. Twitter has huge potential – I can’t wait to work with the company and the user community to unlock it.
Shares of Twitter Inc (NYSE: TWTR) rose 6.3% in Monday’s session after the deal was confirmed.
Europe hits six-week low as Macron win could revive positive sentiment
European stocks fell to their lowest level in six weeks, led by concerns about a more aggressive Federal Reserve and the spread of COVID-19 in China.
China has locked down some areas of Beijing and ordered mandatory COVID-19 testing in one district.
The bad news has outweighed the optimism generated by the re-election of French President Emmanuel Macron.
European markets are “looking to advance risk elsewhere,” said Ilya Spivak, head of Greater Asia at DailyFX. “Equities weren’t ready to focus on the larger Fed-induced decline until after the election was over.”
Le Pen has halved Macron’s margin of victory since the last time they fought for power. However, Macron is seen as a more market-friendly influence. French stocks outperformed other European markets during his first term.
“The short-term outperformance of French domestic equities in the vote signaled that the market had been pricing in a Macron win, but that’s still downside potential on the table and should help stabilize European equities this morning against the backdrop of broader global weakness,” said Carl Dooley, head of EMEA trade at Cowen in London.
Macron now faces an uphill battle to win a crucial majority in June’s parliamentary elections that will allow him to implement his program at a time of soaring inflation and raging war in Europe.
More generally, European investors are preparing for the busiest earnings week of this year.
The Stoxx 600 Europe index fell 1.8%, the lowest since March 15.
Mining and energy led the declines as iron ore and oil tumbled on a deteriorating demand outlook. Utilities and personal care stocks outperformed.
Germany’s Dax lost 1.5% and Britain’s FTSE fell 1.9%. In London trading, shares of Rio Tinto fell 5.2%. BHP shares fell 6.3%.