The market was highly volatile last week, as it has been all year, however US markets all booked gains.
As we start a new trading week the ASX is likely to follow suit: SPI futures are pointing to a 0.5% rise at the open to 7,413, building on the 6% rise the ASX200 index has enjoyed since early March.
The expectations are energy giants, iron ore miners and banks could make gains today on advances in oil and iron ore prices and rising bond yields.
The Dow Jones Industrial Average advanced about 153 points, or 0.4%, ending near 34,861 Friday, but was up 0.3% for the week. The S&P 500 gained 0.5%, while the Nasdaq Composite Index dropped 0.2%. For the week, the S&P 500 rose 1.8% and the Nasdaq gained 2.
Oil prices rebounded Friday after news reports of a missile strike on a Saudi Aramco facility, with the US crude benchmark settling at $113.90 a barrel.
Investors are also continuing to weigh up the consequences of rising policy rates, with New York Federal Reserve president John Williams saying Friday he would support a half-point move if justified. He also said it was premature to make a call on the size of a future rate increase.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.1030 to lows near US$1.0979 and was near session lows at the US close.
- The Aussie dollar fell from highs near US75.34 cents to lows near US74.94 cents and was near US75.12 cents at the US close.
- Global oil prices rose 1.4%. Reuters reported that the US was considering another release of oil from the Strategic Petroleum Reserve which capped price gains.
- The Brent crude price rose by US$1.62 a barrel or 1.4% to US$120.65 a barrel.
- The US Nymex crude price rose by US$1.56 or 1.4% to US$113.90 a barrel. Over the week Brent crude rose by US$12.72 or 11.8%. The Nymex price rose by US$9.20 or 8.8%.
- Base metal prices fell by 0.5-4.6% with nickel down the most. Lead rose 1.7% and zinc rose 0.6%. Over the week aluminium rose 6.9%, zinc rose 6.6% and lead rose 5.3%. Nickel lost 4.4%.
- The gold futures price fell by US$8.00 or 0.4% to US$1,954.20 an ounce.
- Spot gold was trading near US$1,957 an ounce at the US close. Over the week gold rose by US$24.90 or 1.3%.
- The iron ore futures price rose by US$1.16 or 0.8% to US$150.17 a tonne. Over the week iron ore fell by US$1.18 or 0.8%.
Australian market
A game of CHESS
ASX Limited is set to replace its CHESS clearing system, however, this morning announced that there's is a "strong likelihood of delay to the go-live date".
CHESS, or the Clearing House Electronic Sub-register System, is the settlement system and electronic securities depository for all cash equities traded in Australia.
CHESS also registers the title (ownership) of shares on its sub-register. Both this sub-registry service and the fact that it is included within standard settlement fees are unique to Australia.
ASX is replacing the ageing CHESS with enhanced technology that will create new opportunities for the Australian market. When it goes live, the new system will offer richer functionality, adopt global standards and use contemporary technology.
It will also provide the option of accessing distributed ledger technology (DLT), which will deliver information more efficiently and stimulate competition by enabling anyone to build new services.
The ASX noted the timing of the next software release has "resulted in delays to the current phase of the project schedule" and ASX will be "engaging with them to assess the flow-on impacts to project milestones, industry testing, operational readiness and implementation, migration dress rehearsals and the go-live date".
ASX is "confident with the delivery, testing and industry participation to date" but notes the "complexity and risk management necessary for this type of project and the need
for comprehensive industry testing, integration and operational readiness".
"We remain committed to meeting industry and stakeholder expectations of implementing the new system in a manner that appropriately balances efficiency and safety," it adds.
"As a result of the changes to the ITE2 approach, migration dress rehearsals (MDR) will not commence in October as previously advised."
ASX says it recognises "the impact these changes will have on our customers’ programming activities and apologise for the inconvenience" and will "engage with our software provider and stakeholders to assess the impact, and will update the market on this process."
ASX Limited is currently trading at $80.49 but could see its price dive on the news, noting that it has been underperforming the market since February.
Fuel excise cut
The government (no matter which one is in power after May) faces a tricky time over the coming months, as it looks to ease cost of living pressures while keeping inflation under control.
With fuel prices having skyrocketed to more than $2 throughout the country, there have been calls for a temporary cut to the excise tax.
Treasurer Josh Frydenberg has heeded those calls and will slash fuel excise (currently at 42.2 cents per litre) by between 10 and 20 cents for six months to give immediate cost-of-living relief for Australian motorists.
The measure will be part of Frydenberg’s fourth budget along with a $17.9 billion nation-building project cash splash.
Some senior Coalition ministers and industry groups have argued against the move, while others are saying it doesn’t go far enough.
Independent senator Rex Patrick believes the excise should be halved.
"I don’t think that 10 cents or even 20 cents is enough," he told the ABC. "We need to at least halve it, but potentially go further.
"Fuel prices are sitting around the $2.20 per litre mark. They’re likely to go up. The oil price is above $100 a barrel. They could go as high as $180 per barrel. We need to have flexibility to make sure that we give relief to motorists as the fuel price rises."
Budget relief
Assistant Treasurer Michael Sukkar has countered the claim the government is not driving down cost of living pressures enough.
“I can assure you, we are going down the path to reduce the cost of living to Australians,” he told 2GB radio.
“Everything we are doing is to do to make sure that those savings ultimately get through to the people that we want it to get to and we've shown very clearly over a period of time that we'll use any means at our disposal to make sure that those savings are passed through if we were to go down that path.
"The details will be in the Treasurer's budget speech tomorrow night so I don't want that any other than to say that the Treasurer has been very clear that the cost of living relief will be a part of the budget. Obviously, fuel is a significant portion of those costs for your average household.”
The Prime Minister himself told reporters at Western Sydney Airport, where he was announcing $77.5 million funding package for a new airport line, “The impacts on fuel prices and things like that is really causing some great concern to people and the budget on Tuesday night the treasurer or hand down will provide immediate relief, but that's part of a balanced and responsible plan.
"We've taken the time to get that package right and that feeds into our broader economic plan. Our broader economic plan which is about investing in the skills and the infrastructure that Australia needs to grow our economy, but needs to ensure that people can get home sooner and safer and be better connected.”
US markets
US sharemarkets were mixed on Friday.
Financials rose 1.3% in response to higher bond yields. Utilities rose 1.5% and energy rose 2.3%.
Technology and consumer discretionary sectors both fell 0.1%.
Goldman Sachs (NYSE:GS) David Kostin has explained why US equity markets are fairing reasonably well despite negative news.
The S&P 500 has risen 99% from the COVID-19 trough in March 2020, Kostin said, “the best 2-year price performance in at least 75 years”.
“[The] S&P 500 currently stands 5% below its January 3 all-time high and leveraged investors have responded to the recent sell-off by aggressively cutting risk,” Kostin said.
Kostin said individual investors have been buying the dip, short covering has helped too, even as the Fed has turned more hawkish: “$US93 billion of capital has flowed into US equity funds since the start of the year, suggesting that households have continued to buy after the record year for US equity inflows in 2021 (+$243 billion).”
According to Kostin household demand for equities is weakest when GDP slows, inflation accelerates, or interest rates rise. However, Goldman forecasts households will be net buyers of $US150 billion in US equities in 2022.
European markets
Were higher on Friday. Banks fell 0.5% but energy rose 1.3% and basic materials rose 0.8%.
The German Ifo business climate index fell from 98.5 to 90.8 in March.
The pan-European STOXX 600 index rose by 0.1% on Friday but fell 0.2% over the week.
The German Dax index and the UK FTSE index both rose by 0.2% on Friday.
In London trade, shares in Rio Tinto rose by 1.2% and BHP shares lifted by 1.4%. *
“A global recession should be averted while Europe is more at risk for a technical one,” Amundi said in its monthly investment outlook.
Amundi has started that lower expected growth and looming stagflationary risks in Europe call for caution in the cyclical space.
Thankfully for Europe, recession isn’t on the cards.
“Although economic conditions are likely to get worse than get better in the near-term, most of the indicators in [NDR’s Euro zone recession watch report] are very far from recessionary levels. In other words, it will take quite a bit of downside risk to put the region in recession.”