The ASX is set to open slightly higher this morning, despite losses on Wall St overnight.
All US indices were down.
According to Oanda’s Edward Moya, “Wall Street abandoned mega-cap tech stocks as investors continue to digest the hawkish FOMC dot plots and another round of US data. The growth outlook still remains upbeat for next year and that some traders rotating back into cyclicals.”
The ASX’s modest rise should come from a rally in commodities such as iron ore, gold and oil.
ASX futures were up 10 points or 0.1% to 7,206 in the early morning.
Here’s what we saw:
- The Aussie dollar lifted from lows near US71.50 cents to highs near US72.20 cents and was near US71.80 cents in afternoon US trade.
- Global oil prices were 2% higher.
- Reuters noted, "record US implied demand for oil, falling crude stockpiles and an upbeat economic outlook from the Federal Reserve trumped fears of the Omicron coronavirus variant hurting global consumption."
- The Brent crude price rose by US$1.14 or 1.5% to US$75.02 a barrel.
- The US Nymex crude price added US$1.51 or 2.1% to US$72.38 a barrel.
- Base metal prices were higher by 0.5-5.2% on Thursday with lead up the least and zinc the most.
- The gold futures price rose by US$33.70 or 1.9% to US$1,798.20 an ounce.
- Spot gold was trading near US$1,798 an ounce in afternoon US trade.
- Iron ore lifted US$5.00 or 4.6% to US$114.70 a tonne.
Australian markets
The Mid-Year Economic and Fiscal Outlook (MYEFO) was released yesterday.
MYEFO updates the economic and fiscal outlook from the previous Budget. It also takes account of all decisions made since the release of the Budget which affect payments and receipts and hence revises the budget aggregates.
It forecast unemployment to fall sustainably below 5% and wages growth to outstrip inflation over the four year forward estimates.
Here are the key findings:
- Debt is rising, projected to hit $914.8 billion in 2024-25.
- The economy rebounding, with the GDP is forecast to grow a strong 3.75% in 2021-22.
- Unemployment is falling, tipped to reach a low of 4.5% by 2021-22.
- Wage growth is expected to pick-up and reach a modest 2.25% in 2021-22.
Here is CreditorWatch chief economist Harley Dale’s take.
“The Mid-year Economic and Financial Outlook (MYEFO) and November Labour Force Survey both presented a fairly optimistic update for the year ahead in Australia. The Labour Force data in particular provided a strong platform for the launch of the budget update, emphasising a stronger labour market and rising wage growth.
"People suffering financial hardship from COVID-19 can take comfort, as evidence mounts, that Australia will achieve a sustainable, yet divergent economic recovery in 2022.
“What isn’t factored into the Labour Force expectations and subsequent MYEFO, is the uncertainty created by the Omicron variant and the likelihood of other variants to follow.
“This will continue in 2022, but the latest MYEFO is heavily based, rightly so, on Australia’s emergence from the Delta variant. And while many of the MYEFO forecasts are sensible, you can’t help but think they’re looking in the rear-view mirror.
“Likewise, the MYEFO predicts real (ie inflation-adjusted) growth in Australia’s economic activity of 3.75% in 2021/22 and 3.50% in 2022/23. These would be awesome results, especially given that they’re partially based on an unemployment rate reaching 4.25% by June 2023.
“These are reasonably credible numbers in an Omicron environment, yet the debate around how Australia deals with the latest COVID variant will only intensify in early 2022. In isolation that’s not good for business, consumer confidence, and the stability of the job market.
“CreditorWatch data, especially the monthly Business Risk Index, reveals the divergence in credit and consequently financial experiences being encountered by small businesses who have survived lockdowns and are now fighting back.
"What happens to SMEs over the next couple of years in terms of credit conditions and post-lockdown commercial viability will tell us more about Australia’s economic recovery than what happens to GDP or the aggregate unemployment rate.”
Australian indices (at time of writing)
- ASX 200 rose 0.46% to 7,329.10.
- ASX24 futures rose 0.1% to 7,206.
- S&P/ASX Small Ordinaries gained 0.099% to 3,454.80.
- All Ordinaries rose 0.32% to 7,643.20.
US markets
BNPL under fire
Buy Now Pay Later stocks will be looking over their shoulders after Washington-based US regulator the Consumer Financial Protection Bureau (CFPB) said it was looking into five US players including Zip Co, Affirm, Afterpay, Klarna, PayPal (NASDAQ:PYPL).
“The CFPB is concerned about accumulating debt, regulatory arbitrage and data harvesting in a consumer credit market already quickly changing with technology,” the regulator said in its statement.
The news saw Affirm shares dive 12%, while Square lost 4.6%.
Buy Now Pay Later companies will face increased scrutiny of their credit programs as part of the regulator’s inquiry.
"Buy Now, Pay Later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too," said CFPB director Rohit Chopra.
"We have ordered Affirm, Afterpay, Klarna, PayPal (NASDAQ:PYPL) and Zip to submit information so that we can report to the public about industry practices and risks."
Use of BNPL facilities spiked during the pandemic and throughout the US holiday shopping season, CFPB said.
"More and more Americans are using it, and the most recent Black Friday and Cyber Monday shopping weekend saw massive growth in BNPL.
"Today's orders seek to illuminate the range of these consumer credit products and their underlying business practices.
"As part of today’s inquiry, the Bureau is working with its international partners in Australia, Sweden, Germany and the UK, specifically the Financial Conduct Authority.
“The Bureau will also be coordinating with the rest of the Federal Reserve System, as well as its state partners."
Reddit to list
US social media platform Reddit wants to go public on Wall St and has submitted a draft registration with the US Securities and Exchange Commission.
Reddit is yet to determine the number of shares to be offered or the price range for the stock.
"The initial public offering is expected to occur after the SEC completes its review process, subject to market and other conditions," added the company.
Reddit has been operating since 2005 and was bought in 2006 by Conde Nast, which publishes Vogue, The New Yorker and Vanity Fair.
The platform raised $US700 million in August, valuing it at more than $US10 billion.
US indices
- Dow Jones was down 0.1% to 35,897.64.
- S&P 500 fell 0.9% to 4,668.67.
- Nasdaq fell 2.5% to 15,180.44.
European markets
The Bank of England has increased interest rates to 0.25%, making it the first of the central banks to move.
The Old Lady of Threadneedle Street increased the base rate to 0.25% from 0.1% as it made the first move in tackling rising inflation.
There was no word on the potential for the surging omicron cases to derail growth in the British economy.
The European Central Bank maintained its benchmark rate at 0% and reduced its bond buying activity while reiterating it would maintain monetary support into 2022.
“Any increase in interest rates is always going to cause concern from homeowners who will be understandably worried about the implications it might have on their monthly mortgage payments,” the head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, said.
“However, it’s important to remember that even with today’s increase, rates remain incredibly low and so there’s certainly no reason to run for the hills.
“Stress testing will have ensured that any monthly cost increase is easily stomached by the nation’s homebuyers and many more will have also locked in fixed-rate terms which they will continue to benefit from.
“While there will no doubt be some reaction by lenders in line with today’s increase, it’s unlikely to dampen our appetite for homeownership and buyers will continue to benefit from some of the lowest rates seen in recent times.”
Director of Henry Dannell, Geoff Garrett, commented, “A rise in interest rates was expected to materialise early next year but fears over spiralling inflation seem to have forced the Bank of England’s hand into a pre-Christmas increase.
“This is the first time since August 2018 that the cost of money has increased but this relatively small tweak will not, in all context, deter the current 'express train' that is the UK housing market.
“The scales remain firmly tipped in favour of UK homebuyers and despite today’s increase, there’s arguably never been a better time to get on the property ladder.”
European shares had their best day in more than a week, led by gains in banks and miners.
The European Central Bank said it would wind down its €1.85 trillion Pandemic Emergency Purchase Program by March.
European indices
- STOXX 600 rose 1.23% to 476.56.
- German Dax rose 1% to 15,636.40.
- UK FTSE rose 1.3% to 7,260.61.