Certainty from the Federal Reserve over its 2022 fiscal policy brought Wall St back to life yesterday, with the ASX to trend higher as well.
ASX SPI 200 futures were trading up 0.4% to 7,245 this morning.
Meanwhile, global debt is soaring, now standing at 256% of GDP.
Global debt rose to $US226 trillion in 2020 – the biggest yearly increase since World War II.
The International Monetary Fund has blamed richer nations for doing most of the borrowing.
“The large increase in debt was justified by the need to protect people’s lives, preserve jobs and avoid a wave of bankruptcies. If governments had not taken action, the social and economic consequences would have been devastating,” IMF officials wrote.
“But the debt surge amplifies vulnerabilities, especially as financing conditions tighten. High debt levels constrain, in most cases, the ability of governments to support the recovery and the capacity of the private sector to invest in the medium term.”
Here’s what we saw:
- The Aussie dollar lifted from lows near US70.96 cents to highs near US71.75 cents and was near US71.70 cents at the US close.
- Global oil prices rose on Wednesday.
- The Brent crude price rose by US18 cents or 0.2% to US$73.88 a barrel.
- The US Nymex crude price added US14 cents or 0.2% to US$70.87 a barrel.
- Base metal prices were mostly lower on Wednesday after data showed China's economy was dragged down in November by a worsening property slump.
- Copper and nickel both fell by 2%.
- The gold futures price fell by US$7.80 or 0.4% to US$1,764.50 an ounce.
- Spot gold was trading near US$1,776 an ounce at the US close.
- Iron ore lifted US$1.45 or 1.3% to US$109.70 a tonne.
Australian markets
Qantas to record $1.1 billion loss
Qantas Airways (ASX:QAN) Limited is the poster child for how much revenue companies have lost since the pandemic.
Qantas is expected to record a $1.1 billion loss for the first half of the 2022 financial year, due to the small number of flights recorded between July and November.
The dire result was due to the drastic reduction in flying from July to November, with capacity less than 30% of pre-COVID levels, the aviation giant said on Thursday.
Group CEO Alan Joyce said it had been one of the worst halves of the entire pandemic, where most states had their borders closed and the majority of the population was in lockdown.
Telstra fined $2.5 million
The Australian Communications and Media Authority (ACMA) imposed a $2.5 million fine on Telstra Corporation Ltd after discovering large-scale breaches to customer privacy and safety rules.
ACMA chair Nerida O’Loughlin accused Telstra of potentially putting people’s safety at risk.
“When people request a silent number it is often for very important privacy and safety reasons, and we know that the publication of their details can have serious consequences."
All numbers are uploaded to the Integrated Public Number Database (IPND), with the choice of listed or unlisted.
The IPND is important as it can be used by Triple Zero to help locate people in an emergency and warn people of emergencies like flood or bushfire. Failure to correctly upload details to the INPD could have dire consequences for people.
“The provision of these critical services can be hampered and lives put in danger if data is missing, wrong or out of date. It is alarming that Telstra could get this so wrong on such a large scale,” O’Loughlin said.
“Telstra initially self-reported these matters and moved quickly to fix them. However, this is not Telstra’s only recent major breach of these rules, which is why the ACMA has taken this action,” she added.
Telstra must now comply with its obligations or face Federal Court for civil penalties of up to $10 million per contravention.
ACCC greenlights BHP Woodside merger
The Australian Competition and Consumer Commission (ACCC) will not stand in the way of the proposed acquisition of BHP Petroleum by Woodside Petroleum Limited (ASX:WPL), saying there was adequate competition in the market.
“We examined the proposed acquisition closely as it would combine two of the four largest domestic natural gas suppliers in Western Australia,” ACCC chair Rod Sims said.
“We found that post-acquisition, Woodside would continue to face competition from a range of suppliers of domestic gas, including major producers Chevron and Santos, and from several other smaller suppliers including Shell and ExxonMobil,” he said.
Australian indices (at time of writing)
- ASX 200 fell 0.70% to 7,327.10.
- ASX24 futures rose 0.5% to 7,350.
- S&P/ASX Small Ordinaries fell 1.85% to 3,427.40.
- All Ordinaries fell 0.81% to 7,636.20.
The US market
US markets posted their best day in a week, following the Federal Reserve’s announcement of a speedier reduction of its monthly asset purchases in the face of persistently elevated inflation.
The US could now also see three interest rate rises next year.
“It was a hawkish surprise in terms of the dot plot,” fixed income strategist at Schwab Center Collin Martin, told Market Watch.
“It just shows the power of high inflation and what it’s done to the Fed psyche, with even the doves having turned more hawkish.”
Joseph Palmer and Sons director Alex Moffat said, “The Federal Reserve signalled it will increase the pace of the taper of its quantitative easing program and forecast three rate rises for next year.
“Beginning in January, the Fed will buy US$60 billion of bonds per month, down from the current rate of US$90 billion per month. It looks like equity investors have breathed a sigh of relief that the Fed is showing it is in charge and that the fog has lifted giving them a clearer view of the way ahead.
“We must not forget that the US is also nudging its legislated debt ceiling. The Congress agreed last night to raise the limit by US$2.5 trillion with only a few days to go before a potential default.”
According to Allianz Investment Management senior investment strategist Charlie Ripley, “The decision to speed up the pace in removing policy accommodation is welcomed by market participants, but the Fed is likely going to continue to tread lightly as they walk the fine line of attempting to cool inflation without slowing the economy too dramatically.
“The reality is uncertainty surrounding Fed policy is high and will likely remain that way as chairman Powell attempts to unwind the largest monetary stimulus package in history without disruption.”
Chief investment officer for Independent Advisor Alliance Chris Zaccarelli believes investors are still cautious.
“Given the market reaction – stocks higher and bond yields marginally higher – it appears that the Fed had successfully communicated this news ahead of time.
“The sectors leading the market higher - utilities and healthcare - are both very defensive sectors and indicate some concern about the future path of the economy,” Zaccarelli said.
“The big question for markets now is: can the US economy digest this pace of hikes without ending up with a stomach ache?” Principal Global Investors chief strategist Seema Shah said.
“After the 20 months we’ve had, perhaps six hikes over a two-year period looks overwhelming. But compared to previous hiking cycles — most pertinently 2004 to 2006 when the Fed made 17 consecutive hikes — we are tentatively confident that the US economy can handle it. Not only that, but US inflation needs it.”
Musk’s tax woes
Tesla CEO Elon Musk has labelled Democrat Senator Elizabeth Warren as a "Karen" after she accused the billionaire and world’s richest man of being a freeloader for paying little tax.
“Let’s change the rigged tax code so The Person of the Year will actually pay taxes and stop freeloading off everyone else,” Senator Warren tweeted on Tuesday.
Musk, who is likely to pay a multi-billion-dollar capital gains tax bill this year, hit back saying he would pay more tax in 2021 than “any American in history”, which the senator would know “if [she] opened [her] eyes for two seconds”.
"You remind me of when I was a kid and my friend’s angry Mom would just randomly yell at everyone for no reason," Musk tweeted.
“Please don’t call the manager on me, Senator Karen.”
US indices
- Dow Jones was up 1.1% to 35,927.43.
- S&P 500 rose 1.6% to 4,709.85.
- Nasdaq rose 2.2% to 15,565.58.
European markets
Omicron is ripping through Europe, with officials calling it ‘the most significant threat since the start of the pandemic’.
Despite that, European shares rose on Wednesday led by stronger technology and healthcare stocks.
The pan-European STOXX ended a five-session losing streak, with technology stocks leading the gains, adding 1.3%. Healthcare stocks climbed 1.1%.
British consumer price inflation soared to a more than 10-year high of 5.1% year-on-year in November ahead of the Bank of England’s meeting today.
The European Central Bank will also meet today to decide how to adapt the bank’s regular asset purchase programme (APP) once the much larger pandemic-fighting PEPP scheme ends in March.
European indices
- STOXX 600 gained 0.26% to 470.76.
- German Dax rose 0.2% to 15,476.35.
- UK FTSE rose 1.6% to 7,170.75.