Wall St was mixed; European markets were mainly down and the ASX is expected to open lower in trading this morning.
Here’s what we saw:
- ASX futures down 0.4% to 7,507 at 6.53am AEST
- Australian dollar at 73.87 US cents at 6.33am AEST
- Spot gold fell 1.6% to $US1,793.89 per ounce
- Brent crude fell 0.8% to $US71.62 a barrel
- Iron ore rose +4.2% to $US137.97 a tonne
- Zinc was up 1.2%
Australian markets
The Reserve Bank of Australia (RBA) met yesterday to discuss Australia’s economic situation.
As expected, the RBA will maintain its 0.1% target for interest rates out to three years – part of its “yield curve control program”.
RBA Governor Dr Phillip Lowe repeated said he expected conditions to justify a rate rise “will not be met before 2024”.
On a positive note, Dr Lowe said COVID 19’s Delta outbreak would not plunge Australia into recession as high vaccination rates and easing health restrictions should bring forward an economic bounce-back towards the end of 2021.
This is despite lockdowns causing a “material” downturn in the September quarter.
Dr Lowe believes the economy will be back on its pre-Delta path by the second half of next year.
This is good news for struggling businesses and families who have lost their jobs or had hours reduced.
“This setback to the economic expansion is expected to be only temporary. As vaccination rates increase further and restrictions are eased, the economy should bounce back,” Dr Lowe said.
“There is, however, uncertainty about the timing and pace of this bounce back and it is likely to be slower than that earlier in the year. Much will depend on the health situation and the easing of restrictions on activity.
“In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”
Commonwealth Bank’s head of Australian economics, Gareth Aird, said of Dr Lowe’s comments, “It probably means that the economy will need to have clear air from COVID-19 by around March or April next year to get to (the RBA’s) pre-Delta path by mid-2022.
“Our working assumption is that the economy will not have clear air from COVID-19 until the middle of next year, which means that we are unlikely to find ourselves on the pre-Delta path until later in 2022.
“From that point we expect the economy to be firing well and very strong outcomes are likely.”
The RBA board will also reduce the pace of weekly bond purchases from $5 billion to $4 billion “until at least February 2022”.
Australian indices
- ASX 200 lifted 0.024% to 7,530.30
- ASX24 futures dipped 0.4% to 7,503
- S&P/ASX Small Ordinaries rose 0.13% to 3,590.10
- All Ordinaries was up 0.033% to 7,826.40
US markets
US traders returned from their Labor Day weekend, facing a light week of economic data, which did nothing to buoy the market.
Analysts say US traders are still digesting a weaker August jobs report.
“We’re still kind of digesting Friday’s weak job number and the potential impact that might have with the economy,” said Ryan Detrick, chief market strategist for LPL Financial.
Rising bond yields helped out bank stocks. The yield on the 10-year Treasury note rose to 1.37% from 1.32% on Friday, seeing the Bank of America (NYSE:BAC) rise 0.7%.
The markets are expected to be volatile in coming days and weeks now that earnings season is done.
Earnings played a major role in stronger markets as did guidance from the Federal Reserve that the central bank plans to keep interest rates low.
Now, it’s a wait and see period of time as the impact of the Delta strain of COVID-19 makes itself known.
“The economy has been showing signs of weakening and we’re seeing a clear impact from the delta variant seeping into economic data,” Detrick said.
Investors are hoping the Fed maintains its support for low interest rates as the jobs market recovers.
“You have to wonder whether we are in a bad news is good news scenario regarding the Fed,” Detrick said.
Weakest sectors were industrials down 1.8%), real estate down 1.1% and materials down 0.7%.
Big Tech stocks lifted with Apple up 1.6%, Amazon up 0.9% and Netflix (NASDAQ:NFLX) up 2.7%.
US indices
- Dow Jones fell 0.8% to 35,100.00
- S&P 500 dropped by 0.3% to 4,520.03
- Nasdaq rose 0.1% to 15,374.33
European markets
European sharemarkets eased back on Tuesday after a relatively strong start to the week.
Investors remain cautious ahead of a meeting by the European Central Bank later in the week.
Utilities, healthcare and chemicals fell by around 1%.
European indices
- STOXX 600 fell 0.49% to 472.87
- German Dax fell 0.6% to 15,843.09
- UK FTSE fell 0.5% to 7,149.37