After steep falls last week, the ASX looks set to regain its composure today. ASX futures were up 32 points or 0.45% to 7,199 points early this morning.
Global markets rebounded overnight, with the Dow adding 0.3%, the S&P moving 0.4% and the Nasdaq up 0.7%.
Mind you, they had some catching up to do, given that last week capped off the worst week of 2023 – the first three-week losing streak for the S&P since December.
The reason? You guessed it, concern about monetary policy, which shows no sign of easing as the Federal Reserve eyes another 50-basis-point hike.
Modest gains seemed to be the order of the day, with Apple (+1%) Amazon (+0.1%) Netflix (+1.9%) BHP (+0.1%) Rio (+0.5%) and Atlassian (+1.8%) all in the green.
Tesla bucked the moderate trend, gaining 5.5% on the back of a Reuters report that its German plant had hit a production rate of 4,000 vehicles per week ahead of schedule.
Flat wages won't save us
On the home front, as in most other advanced economies, there was handwringing about the still-overheated rate of inflation.
“It seems that another 25bps in March is already locked in, after a hotter-than-expected monthly reading of 8.4% for December in January shocked markets,” wrote eToro market analyst Josh Gilbert.
“But the risk from here for the RBA is that inflation remains higher for longer than they are expecting. However, markets expect the monthly number to decline this week, with consensus for a reading of 8.1% on Wednesday.
“A positive for investors in the inflation battle was the weaker-than-expected pace of wage growth, which would suggest that Australia will avoid a wage spiral, news that the RBA will welcome.”
Flat wages may not be enough to save us though: “The bottom line is that although inflation is likely to fall this week, the RBA isn’t taking its foot off the gas yet,” Gilbert added.
Of course, where there are rate lifts there is always recession panic. On this, Gilbert – and others – remain optimistic.
“Although RBA Governor Lowe has said the path to a soft landing remains narrow, Australia’s impressive economic record will offer investors some comfort,” he said.
“This week will show just how to economy is faring with the release of Q4 GDP, which is expected to show growth of 0.5% quarter-on-quarter and 2.5% year-on-year. Since Australia fell into its first recession for 30 years in 2020, economic growth has bounced back swiftly.”
Sunak’s deal on Northern Ireland
European markets also closed higher on Monday, as post-Brexit UK relations with Europe appeared to thaw.
Prime Minister Rishi Sunak made a deal with the continent on trade rules for Northern Ireland – which has been caught in the middle since the UK left the EU.
The province of the UK was left with a hard border with the neighbouring Republic of Ireland, while geographical realities meant it didn’t have a genuinely open border with the mother country.
Sunak hopes his deal will smooth both international and internal relations for Northern Ireland.
Under the agreement:
- goods moving into Northern Ireland from mainland Britain will now travel through a ‘green lane’ – there will be a ‘red lane’ for goods that may then move on to the EU;
- products coming via the green lane will not be subject to checks and paperwork;
- the Northern Ireland Assembly may raise an objection to ‘significantly different’ EU rules applying to Northern Ireland; and
- UK customs and excise rules will apply to Northern Ireland for certain products, rather than EU rules.
According to US President Joe Biden, the deal is "an essential step to ensuring that the hard-earned peace and progress of the Belfast/Good Friday Agreement is preserved and strengthened".
The markets responded to the reduced risk with the continent-wide FTSEurofirst 300 index gaining 1.1%. Travel and leisure shares were up 2.3%, while retail stocks added 2% as Hennes & Mauritz (H&M) added 4.2%.
In other news
Global oil prices were down by almost 1% yesterday on the back of more inflation and interest rate fears.
Brent crude slipped by 71 US cents or 0.9% to US$82.45 a barrel, while US Nymex crude was down 64 US cents or 0.8% to US$75.68 a barrel.
Base metals were up on Monday – the copper futures price lifted from a seven-week low, up 1.4%, amid a broader rally in equity markets, while the aluminium futures price gained 1.2%.