All eyes will be on the Reserve Bank of Australia (RBA) tomorrow, with the central bank likely to admit it will raise interest rates earlier than expected.
It will follow the US Fed’s announcement last week that a rate rise in the US is likely in March.
The Fed has had a big impact on the share market as it reacts to rising inflation.
That, along with Omicron fears has caused enormous volatility, which is set to continue.
However, Wall St finished strongly on Friday and while the ASX has opened lower this morning, Wall Street’s recovery could auger well for later trading on Monday in Australia.
The big winner in the US on Friday was Apple, whose shares rallied 7% on Friday – its biggest one-day percentage jump in a year and a half.
The leap came after the tech giant announced blockbuster results and teased its metaverse ambitions.
Apple’s stock remains down 4% so far in 2022, however, 11 brokerages have raised their price targets for the stock, bringing the median price target to $US188.5, according to Refinitiv data.
Here’s what we saw (source Commsec):
- The Aussie dollar fell from US70.40 cents to near an 18-month low of US69.70 cents and was near US69.85 cents at the US close.
- Global oil prices rose by as much as 0.8% on Friday to near 7- year highs. Investors now turn their attention to the OPEC+ meeting on February 2.
- The Brent crude price rose by US69 cents or 0.8% to US$90.03 a barrel.
- The US Nymex crude price edged up by US21 cents or 0.2% to US$86.82 a barrel. Over the week Brent rose by US$2.14 or 2.4% and Nymex rose by US$1.68 or 2.0%.
- Base metal prices were lower by 0.1-2.8% on Friday with nickel down the least and copper down the most.
- Over the week metals fell with nickel down 6.4%. But aluminium bucked the trend, up 1.9%.
- The gold futures price fell by US$8.40 or 0.5% to US$1,786.60 an ounce.
- Spot gold was trading near US$1,791 an ounce at the US close.
- Over the week gold fell by US$45.20 or 2.5%.
- Iron ore rose by US$9.15 or 6.6% to US$147.90 a tonne. Prices rose on tight supplies and hopes for stronger Chinese demand.
- Over the week iron ore rose by US$10.50 or 7.6%
Australian market
As we do each Monday, we asked for Wealth Within analyst and founder Dale Gillham’s take on the Australian market, here’s what he had to say.
“With the Australian stock market falling over the last few weeks, there has been a lot of talk around consumer confidence and inflation as the possible causes. With the RBA set to meet for the first time next Tuesday, the focus is on whether they will raise interest rates and how this will affect the stock market.
“According to the RBA, inflation is currently sitting at 3.5%. To put this into perspective, at the start of this century inflation was 1.8% and has been as high as 5% in September 2008 and the lowest in June 2020 when it fell to -0.3%. According to Trading Economics, the Australian inflation rate has averaged 4.86% from 1951 to 2021, yet we are now at the highest level of inflation in the last 13 years since 2008. Consequently, many are talking about raising interest rates to slow the economy and curb inflation.
“Right now, given the current COVID situation, I do not think there is a solid argument for raising interest rates although I do believe they will rise this year. That said, I don’t believe the rise will be anything significant, as the RBA knows that the current factors driving up inflation are only temporary.
“Regardless of your views on whether interest rates will rise next week, the fact is that the market is falling. So, understanding why is of least importance; what you need to focus on is whether to hold your position in the market, reduce it or exit altogether.
“In my opinion, investors are too focused on what the index is or will do rather than focusing on their investments. Right now, I am not focusing my attention on the market or interest rates but instead on some of the top 50 stocks in our market, as I believe they will present some great buying opportunities in the next few weeks.”
US markets
US markets recorded the best gains so far in 2022.
Technology led gains although energy fell.
At the close of trade, the Dow Jones index was up 565 points or 1.7%. The S&P 500 index rose by 2.4%. And the Nasdaq index gained 418 points or 3.1%. Over the week the Dow rose by 1.3%; the S&P 500 added 0.8%; and the Nasdaq was flat.
“S&P 500 fell by 10% from the peak on January 3 to January 27. Valuations have contracted as real rates have risen. The S&P 500 would decline by 10% to 4,000 if the real 10-year Treasury yield rose by 60 bp to 0% and by 15% to 3,800 if it rose by 100 bp, all else equal,” writes Goldman Sachs (NYSE:GS).
“Historically, the S&P 500 fell by an average of 15% peak-to-trough during the 21 non-recession corrections since 1950, which in the current market would place S&P 500 at 4,100.
“But market corrections are typically good buying opportunities if the economy is not entering into recession. Buying the S&P 500 10% below its high, regardless of whether that was the trough, would have generated a median return of +15% during the next 12 months, or 4,975 today.”
European markets
Europe traded higher on Friday, however was down for the fourth straight week.
The Ukraine-Russia political situation continues to have an effect.
Autos and technology fell around 1.8% on fears of higher interest rates.
The pan-European STOXX 600 index declined by 1.0% on Friday and was down 1.8% on the week.
The German Dax index lost 1.3% as data showed the economy contracted 0.7% in the December quarter.
The UK FTSE index fell by 1.2%. In London trade, shares in Rio Tinto eased by 3.3%. Shares in BHP lost 2.5%.