The week kicked off on a positive note for most markets yesterday.
The benchmark S&P/ASX 200 closed 0.3% higher, up 19.9 points to 7,513.7, just 75 points below January’s high of 7,589.
Lithium, rare earths and iron ore miners provided strong support for the ASX, with the local market expected to continue its good run today.
Over on Wall St, investors bought tech-related shares as they shook off fears of a recession.
The Dow Jones Industrial Average gained 104 points, or 0.3%, to close near 34,922, while the S&P 500 lifted 37 points, or 0.8%, to 4,583. The tech-heavy Nasdaq Composite advanced around 271 points, or 1.9%, finishing near 14,533.
As with Australia, the Fed will meet on Wednesday to discuss monetary policy, with investors looking ahead to the minutes for clues to the pace of further monetary tightening.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.1052 to lows near US$1.0959 and was near US$1.0970 at the US close.
- The Aussie dollar rose from lows near US75.04 cents to highs near US75.56 cents and was near US75.45 cents at the US close.
- Global oil prices climbed as much as 4% after the EU said it was working on new Russian sanctions, while Saudi Arabia hiked its Arab Light price for Asian buyers by US$4.40 a barrel over the month, pushing prices further into record territory.
- The Brent crude price rose by US$3.14 or 3% to US$107.53 a barrel.
- The US Nymex crude price added US$4.01 or 4% to US$103.28 a barrel.
- Base metals prices were mixed. Zinc rose by 0.3% to its highest settled price since 2006 as further declines in exchange inventories add to mounting evidence of strained supply.
- Copper was up 1.1%, but tin fell by 1.9% and nickel was flat.
- The gold futures price rose by US$10.30 or 0.5% to US$1,934.00 an ounce.
- Spot gold was trading near US$1,931 an ounce at the US close.
- The iron ore futures price gained US$2.02 or 1.3% to US$162.00 a tonne as blast furnace rates in steel-making hub Tangshan, China lifted 0.3% last week, signalling a lift in demand.
Australian market
The Reserve Bank of Australia will meet today and is expected to keep interest rates on hold.
CreditorWatch chief economist Anneke Thompson says this will be the penultimate cash rate decision before the Federal Election, which has determined the Official Cash Rate (OCR) should remain unchanged for at least one more month.
“Despite three consecutive quarters of inflation being on or above the top range of the official inflation target band, today’s interest rate decision comes as no surprise. It does, however, seem that inflation is here to stay, at least for the short term, and therefore a rise in the cash rate is imminent.
"In terms of Federal Budget impacts, cash splashes in the form of petrol savings and extra tax cuts for low and middle-income workers will work to move money through the economy, at least temporarily. However, it remains to be seen if households will spend this money or will squirrel it away as a cushion against future higher home loan rates,” Thompson says.
"CreditorWatch data highlighted in the Business Risk Index (BRI), has revealed repeat industry offenders when it comes to blown-out payment times and the probability of businesses defaulting - namely the hospitality sector and construction industry.
"We know the hospitality sector is largely made up of SMEs and with high-profile company collapses in the construction sector such as Privium, Probuild and Condev, it appears businesses are now at increased risk of default following years of government support, chiefly in the form of JobKeeper."
Thompson went on to look at the SME sector and its struggles as well as employment growth and the relationship between interest rates.
“Higher input and logistics costs coupled with future cash rate increases will weigh heavily on what is already a challenging operating environment for SMEs. Trade receivables data from CreditorWatch show that B2B trade is substantially down on pre-COVID levels – with the downward trajectory accelerating throughout 2021. Trade receivables in February 2022 were down 37% compared to the year prior.
"This data indicates that while big business may be benefitting from increased spend following the release from lockdowns, the smaller end of town is still struggling to recover. Continued flooding in NSW and QLD may be a further impediment to trade receivables returning to pre-COVID conditions.”
“That being said, Australia’s employment growth has been a shining light for the economy, the strength of which is fuelling wage growth forecasts. The Economic Outlook section of Budget 2022/23 forecast growth in the Wage Price Index (WPI) of 2.75% through to June 2022, rising to 3.25% by June 2023. Even higher wage growth is forecast once bonuses, promotions and other measures of labour elasticity are factored in.
“With this in mind, an interest rate rise appears imminent but the velocity and speed of increases are still very uncertain. While inflation is a key target for the RBA, full employment is another. Having just reached full, or close to full employment, it’s highly unlikely the RBA will choose to threaten this status by raising the cash rate too quickly. A steady approach is a more likely scenario, with small rises spaced out as the RBA monitors the impact of each rate rise as they occur.”
Scott Solomon, associate portfolio manager of T. Rowe Price’s Dynamic Global Bond Strategy expects the RBA to address market pricing of hike rates.
“While we are fairly certain the Reserve Bank of Australia (RBA) won’t hike rates, we expect them to continue their hawkish pivot but still reference patience. Data continues to be strong, but Q1 Consumer Price Index (CPI) won’t be released until later in April. The post-COVID version of the RBA has yet to front run anything and we don’t expect them to start now.
“We do expect them to address market pricing of rate hikes which currently indicates a December cash rate target of 1.80% vs the US implied rate of 2.50%, according to Bloomberg. While there is a notable gap between markets, Governor Lowe has noted several times that when it comes to inflation, there are meaningful differences between the US and Australia, and we believe he will attempt to talk down market rate hike expectations.
"In the US, there is a lot of talk coming out of the Fed about trying to hurry up and get back to where they were pre-COVID (which was 1.75%). The RBA continues to reiterate patience and the pre-COVID rate was a mere 0.75%. If the RBA can successfully signal where they expect to be at year’s end, I think that will help the market much more than signalling lift-off. If they can get the market comfortable with that, whether lift-off is in June, July, or August, it doesn’t much matter.
“There is a chance they will open the door ever so slightly to a May hike just in case Q1 CPI is a blowout. Given what has occurred in other developed markets they may be inclined to remind the market they are nimble and have the appropriate tools in their kit. Because they consider this a tail event, I don’t expect this to be addressed in the official release, but more likely via speeches post-release.
“The market appears to be wrestling with the age-old question of should vs will. It’s a trap many market practitioners fall into, and given current market pricing, the “should” camp is certainly having its say.
"There are those citing the recent budget proposal as more ammo for the RBA to hike, but the transmission function of fiscal changes occurs on a meaningful lag, if at all. And the RBA is not in the business of making policy changes based on “might”.
"There is always that possibility the RBA will change directions without warning – look no further than the RBA’s handling of the end of Yield Curve Control (YCC) in October - but for now I think the RBA should remain on the path they’ve laid out thus far in 2022.”
US markets
Indexes were boosted by megacap tech and growth stocks and a surge in Twitter, which was 27.1% higher after Elon Musk revealed a stake in the company, making him its largest shareholder.
Tesla shares rose 5.6% after the company reported record electric vehicle deliveries for the first quarter.
Shares of Apple gained 2.4%, Amazon was 2.9% higher, Nvidia was up 2.4% and Microsoft gained 1.8%. The loser was Starbucks, which dipped 3.7% after the coffee chain suspended its share repurchase program.
Musk becomes twitter’s largest shareholder
Elon Musk has bought an A$4 billion stake in Twitter, making him the social media platform’s biggest shareholder.
No doubt he will how ramp up his tweets, but is there another motive other than to buy part of his favourite social media outlet?
New York Times authors Mike Isaac and Lauren Hirsch put it best when they wrote, “Now Mr Musk is putting his money where he mouths off”.
Musk has purchased a 9.2% stake in Twitter, where he has more than 80 million followers. He is now the largest shareholder ahead of the 8.8% stake owned mutual-fund company Vanguard and the 2.3% owned by Jack Dorsey, Twitter’s former chief executive.
Musk can certainly afford it, he is worth a reported $270+ billion, but he has filed a securities document called a 13G filing, that indicates that he plans to remain passive and does not intend to pursue control of the company.
However, there is speculation it may not be passive for long.
“We would expect this passive stake as just the start of broader conversations with the Twitter board/management that could ultimately lead to an active stake and a potential more aggressive ownership role of Twitter,” Wedbush Securities analyst Daniel Ives said on Monday morning.
Ben Laidler, Global Markets Strategist at eToro said: "Elon Musk has taken a 9.2% stake in Twitter (TWTR), valued at around $3 billion, and become its largest shareholder. This is a significant public step in diversifying his investments away from major holdings like Tesla (TSLA) and SpaceX. It has triggered a Twitter share price surge, and focused attention across the long suffering social media sector, from Meta (FB) to Snap (SNAP).
"Warren Buffett famously encourages investments in 'what you know', and Elon Musk knows Twitter very well. He has 80 million followers on the platform, has made over 17,000 tweets since joining in 2009, and recently publicly criticised the company for its free speech policy.
"It remains to be seen what Musk plans for his stake, which is four times the size of founder Jack Dorsey. Twitter has only recently seen Dorsey step down as CEO in November last year, under pressure from famed activist investor Elliott Management. "
European markets
The pan-European STOXX 600 index gained 0.8% with technology shares up 2.1% after Tesla CEO Elon Musk purchased a 9.2% stake in Twitter.
Sentix's investor sentiment index for the eurozone fell from -7 to -18 in April, hitting its lowest level since July 2020.
The German Dax index added 0.5% and the UK FTSE index gained 0.3%.
In London trade, shares of Rio Tinto (-1.5%) and BHP (-0.7%) both fell.