The world is a little less panicked this morning without a Facebook outage and that’s good news for the ASX, which is expected to start higher this morning.
All eyes are on the oil price which continues to climb.
While the energy sector was unable to pare back losses in tech stocks and materials yesterday, global factors continue to work in its favour.
Oil prices increased after an OPEC meeting agreed to stick with current small production increases. This saw Brent crude rise by 2.9% to $US81.58 a barrel and US oil rise 2.7% to $US77.96 a barrel.
Some analysts are predicting oil could get to $100 a barrel.
According to Swissquote analyst Ipek Ozkardeskaya, there’s plenty going on in the fuel market to keep us interested.
“The exponential rise in natural gas prices should continue pushing higher the demand for fuel as replacement into the colder months in the northern hemisphere,” he said.
“Therefore, it looks like the oil producers have little to fear in the actual energy crunch environment, and rising supply above the actual 400,000 barrels per day may not hit the mood in the oil markets for long.
“On the other hand, the upside in oil should remain limited at around the $80pb, as this fast rise in the energy crisis can only stall the economic recovery and lead to a pullback in global demand. It’s a fine balance, but the power is in the hands of the supply side, for the moment.”
The rising price in oil may be good for oil companies, but it isn’t so good for governments managing inflation.
“The rising energy cost is a growing headache for inflation, and the central banks. We have two important central bank meetings this week: the Reserve Bank of Australia (RBA) which met on Tuesday, and kept rates unchanged, and the Reserve Bank of New Zealand (RBNZ) which meets on Wednesday, and is expected to raise the official cash rate by 25 basis points to 0.50%,” Ozkardeskaya said.
“The RBNZ rate hike will be a warning that tighter monetary policies are not a bluff, but they will start happening to ease the inflationary pressures.”
Here’s what we know:
- The Aussie dollar lifted from lows near US72.50 cents to highs near US73.00 cents and was near US72.90 cents at the US close.
- Global oil prices rose by around 2.0% on Tuesday after OPEC+ elected not to lift production more than planned. On Monday, OPEC+ agreed to adhere to its July pact to boost output by 400,000 barrels per day (bpd) each month until at least April 2022, phasing out 5.8 million bpd of existing production cuts.
- The Brent crude price rose by US$1.30 or 1.6% to US$82.56 a barrel.
- Base metal prices were mostly higher on Tuesday, lifting 0.3-1.8% with aluminium up the least and tin the most.
- Copper was the exception, down 0.9%.
- The gold futures price fell by US$6.70 an ounce or 0.4% to U$1,760.90 an ounce.
- Spot gold was trading near US$1,759 an ounce at the US close.
- Iron ore was unchanged at US$117.80 a tonne.
Australian market
The S&P/ASX200 closed 0.4% lower at 7248.4 yesterday but should see a rise this morning after Wall St entertained a tech bounce back.
The most significant thing to happen yesterday was the RBA’s monetary policy meeting. It left the cash rate at 0.1% and the interest rate paid on Exchange Settlement balances at zero.
They will also maintain the target of 10 basis points for the April 2024 Australian Government bond and continue to purchase government securities at the rate of $4 billion a week until at least mid-February 2022.
RBA noted: Wage and price pressures remain subdued in Australia. In underlying terms, inflation is running at around 1¾% and wages, as measured by the Wage Price Index, are increasing at just 1.7%. While disruptions to global supply chains are affecting the prices of some goods, the impact of this on the overall rate of inflation remains limited.
The Board is committed to maintaining highly supportive monetary conditions to achieve a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. The central scenario for the economy is that this condition will not be met before 2024. Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.
Banks set to tighten lending criteria
The Australian Prudential Regulatory Authority (APRA) is leaning on banks to raise their minimum interest rate buffers when assessing loan serviceability.
APRA now expects lenders to assess loan repayment ability at an interest rate at least 3 percentage points above the loan product rate.
This is half a percentage point higher than is commonly used.
APRA chair Wayne Byres said it's a "targeted and judicious action designed to reinforce the stability of the financial system.
“In taking action, APRA is focused on ensuring the financial system remains safe, and that banks are lending to borrowers who can afford the level of debt they are taking on – both today and into the future," he said.
“While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building.
“More than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, and at an aggregate level the expectation is that housing credit growth will run ahead of household income growth in the period ahead.
“With the economy expected to bounce back as lockdowns begin to be lifted around the country, the balance of risks is such that stronger serviceability standards are warranted,” he added.
"Together with other members of the CFR, APRA will continue to closely monitor risks in residential mortgage lending and can take further steps if necessary."
Australian indices
- ASX 200 fell 0.41% to 7,248.40.
- ASX24 futures rose 0.5% to 7,253.
- S&P/ASX Small Ordinaries fell 1.04% to 3,402.80.
- All Ordinaries fell 0.53% to 7,536.50.
US markets
It was all about the tech stock recovery overnight.
Big tech led the rebound with the major technology companies all in winning form. Shares in Microsoft and Facebook both rose by 2% with Alphabet (Google) up 1.8% and Apple up 1.4%.
Meanwhile, the US trade deficit increased to a record US$73.3 billion in August, beating analyst expectations, as the country's imports grew more than its exports.
In August, exports rose 0.5% to US$213.7 billion, while imports grew 1.4% to US$287 billion.
Investors are now worried about rising interest rates and unsettled Washington policy questions.
Potential for a US government default is looming as lawmakers in Congress debate lifting the debt limit.
US indices
- Dow Jones rose 0.9% to 34,314.67.
- S&P 500 rose 1.1% to 4,345.72.
- Nasdaq rose 1.3% to 14,443.83.
European markets
Markets in Europe were also higher on Tuesday.
Banks led the surge up 3.5%, while technology was up 2.2%.
Bank stocks rose to 18-month highs and it was the first lift for tech stocks in eight sessions.
In London trade, shares in Rio Tinto fell by 0.1% while shares in BHP lifted by 0.7%.
European indices
- STOXX 600 rose 1.17% to 456.03.
- German Dax rose 1.1% to 15,194.49.
- UK FTSE rose 0.9% to 7.077.10.