After late gains on Wall St overnight, the ASX is expected to open higher this morning, with ASX futures up 13 points or 0.2% to 7,360 near 7am AEDT.
Before we get into what the Reserve Bank of Australia might announce half an hour before the country’s most famous horse race, let’s have a look at what we know.
- The Aussie dollar held between US74.80 cents and US75.35 cents and was near US75.15 cents at the US close.
- Global oil prices were firmer on Monday. According to Commsec, “A Reuters survey found that OPEC+ oil output in October fell short of planned levels. But this news was balanced by an official statement by China saying that it had released gasoline and diesel reserves to increase market supply and support price stability in some regions.”
- The Brent crude price rose by US99 cents or 1.2% to US$84.71 a barrel.
- The US Nymex crude price gained US48 cents or 0.6% to US$84.05 a barrel.
- Base metal prices were mixed on Monday. Tin, lead and zinc fell by as much as 1.3%. Other metals rose by up to 1.9%, led by copper.
- The gold futures price rose by US$11.90 or 0.7% to U$1,795.80 an ounce.
- Spot gold was trading near US$1,793 an ounce at the US close.
- Iron ore slid by US$3.45 or 3.2% to US$103.30 a tonne.
Just on the commodities front, sluggish demand at mills due to mandated output cuts and Beijing’s coal price controls seem to be weighing down sentiment.
Prices for steelmaking ingredients on the Dalian Commodity Exchange were down yesterday after steel, cement and coking plants in the steel hub of Tangshan city were ordered to cut production due to a heavy-pollution alert.
It is now rumoured that the world’s biggest copper miner, Chile’s Codelco, has offered Chinese customers annual copper supply for 2022 at a premium of $US105 a tonne.
According to Capital Economics, “The big picture is that (China PMIs) remain at odds with sky-high industrial metals prices. Prices have quite a long way to fall over the next year or so as constraints on supply caused by power shortages start to fade.”
Australian markets
The ASX climbed 0.6% yesterday boosted by several mergers and acquisitions.
AusNet Services led the way with a 3.6% gain following the announcement that its board and major shareholders had backed a $10.2 billion Brookfield takeover bid that will see the Aussie company fall under Canadian control.
“This is obviously a full price that is very attractive for shareholders. And you would expect though if it was to fail at a shareholder vote, especially because a large shareholder blocked it, it’s pretty unlikely you’re going to see a transaction like this for the company again anytime in the near future,” Asia Pacific chief executive at Brookfield Asset Management (TSX:BAM.A) Stewart Mr Upson said.
“So, if shareholders including State Grant had any interest in exiting it on such an attractive basis, they need to do it now if they want to do it.”
The Canadian asset manager likes AusNet’s growth prospects, including its more than $11 billion regulated and contracted asset base at a time when energy transition is fast accelerating.
RBA decision looms
The RBA will meet at 2.30 today, half an hour prior to the opening of the gates holding the Melbourne Cup runners back.
While it’s nearly impossible to choose a winner in the race, we can predict with far more certainty that the RBA will keep interest rates on hold despite rising inflation.
However, rates won’t be at record lows for as long as expected.
Some analysts are saying RBA Governor Phillip Lowe will today officially announce the end of the COVID economic crisis.
The record low 0.1% cash rate has sent house prices soaring, but it also meant interest rates on savings were slashed, which meant your bank account was making no money, but you could invest for the long-term in house prices or try your luck on the stock market – which many retail investors and millennials have done as trading apps such as Superhero, which make investing easy, have become more and more popular.
It is expected that the governor will now announce that the mooted 2024 interest rate rise date will be reconsidered and moved forward.
NAB today released a statement saying, “RBA [is] the main draw today and where last week’s de facto abandonment of the 0.1% April 2024 Yield Curve Control target is expected to be formalised. In doing so, presumably the broad contours of the RBA’s forecast revisions, to be revealed in the statement today prior to publication in Friday’s [Statement on Monetary Policy] would, if realised, allow for rates ‘lift-off’ potentially occurring somewhat earlier than April 2024.”
The Bank of America has also chimed in: “The Bank will need to recover some credibility over forward guidance as the assertion that rates will remain unchanged until 2024 now looks untenable. The lack of communication in stepping back from defence of the Apr-24 target has resulted in a disorderly repricing of the policy outlook.
“A full unwind of the yield targeting regime looks more likely this week and the RBA may prepare the stage for bond purchases to end or tapered aggressively in February 2022.
“We see several reasons why the RBA might stress patience on normalisation, but even modest changes to guidance are likely to be interpreted as a more hawkish RBA stance, even after the recent extreme repricing.
“While the belly of the rates curve is cheap and the rate hike premium priced-in is too aggressive, we struggle to see how the RBA will re-establish credible dovish guidance, and we would not fade it here. AUD outperformance is consistent with changes to G10 1y1y forward differentials.”
We are now looking at 2023 as a potential timeframe for rates to lift, however, it could happen earlier.
All eyes will be on the RBA ahead of the running of the Cup.
Australian indices
- ASX 200 rose 0.64% to 7,370.80.
- ASX24 futures rose 0.2% to 7,360.
- S&P/ASX Small Ordinaries rose 0.92% to 3,535.30.
- All Ordinaries rose 0.70% to 7,692.20.
US markets
The markets hit fresh record highs yesterday, led by vehicle manufacturers.
Shares in Tesla rose 8.5% on optimism about the outlook for the electric car maker.
Shares in Harley Davidson rose 9.1% after the European Union removed retaliatory tariffs on US products, including whiskey, powerboats and company's motorcycles.
However, Morgan Stanley (NYSE:MS)’s outlook isn’t a bright one stating the picture for US stocks is deteriorating despite the bullishness lasting through Thanksgiving on November 25.
As for its bearish outlook, Morgan Stanley states: “We think the earnings growth slowdown will be worse and last longer than expected as the payback in demand arrives early next year with a sharp year-over-year decline in personal disposable income.
“While many have argued that the large increase in personal savings will keep consumption well above trend, it looks to us as if personal savings have already been depleted to pre-COVID-19 levels.“
US indices
- Dow Jones was up 0.3% to 35,913.84.
- S&P 500 rose 0.2% to 4,613.67.
- Nasdaq rose 0.6% to 15,595.92.
European markets
Were firm yesterday.
October momentum carried on the back of strong earnings and expectations of interest rate hikes supported bank stocks.
The pan-European STOXX 600 hit record highs, supported by a 1.4% lift in bank stocks.
In fact, the bank sector was the best performer, hitting its highest level in more than two years.
The bank-heavy Italian and Spanish indexes rose 1.2% and 1.4%, respectively.
“There’s a lot of earnings optimism, the feel-good factor of companies bouncing back,” Equiti Capital markets analyst David Madden said.
“We spent so much time being afraid of the tapering in September and early October. I think people are now going to see tapering as a positive sign, that you can completely come full circle.”
Shares in the world's largest jewellery maker, Pandora, fell 1.2% in response to weaker third-quarter sales.
Shares in UK bank, Barclays, fell by 1.6% on news that its chief executive officer would resign.
In London trade shares in Rio Tinto were flat and BHP shares fell by 0.6%.
European indices
- STOXX 600 rose 0.71% to 478.87.
- German Dax rose 0.8% to 15,806.29.
- UK FTSE rose 0.7% to 7,288.62.