The ASX is expected to fall this morning as China moves into lockdown mode amid another significant COVID-19 outbreak, which has slammed demand for commodities including iron ore and coal.
News of the lockdown caused iron ore to plunge near 10% to approximately $US135 a tonne, while oil shed near 5% with US crude sliding below $US100 a barrel and gold dipping below $US1,900 an ounce.
ASX futures were down 25 points or 0.3% to 7,298 near 7am AEST; they earlier fell more than 130 points.
Over on Wall St, shares rallied from early losses to finish higher.
All three major US stock benchmarks closed higher, as Treasury yields fell and investors appeared to shrug off concerns over China's COVID-19 lockdown.
The Nasdaq Composite led the way with a 1.3% gain, followed by the Dow Jones Industrial Average, which finished up 0.7%. The S&P 500 closed with a modest gain of about 0.6%, with mixed results across its 11 sectors.
Information technology and communication services booked the biggest gains in the S&P 500 index, while energy was the worst-performing sector.
Twitter rose after accepting a takeover offer from Elon Musk and several big tech earnings are poised to determine sentiment this week including Apple and Microsoft.
More on Twitter shortly.
Here’s what we saw (source Commsec):
- Currencies were mixed against the US dollar in European and US trade. The Euro fell from highs near US$1.0775 to lows near US$1.0700 and was near US$1.0715 at the US close.
- The Aussie dollar fell from highs near US72.00 cents to lows near US71.35 cents and was near US71.75 cents at the US close.
- Global oil prices fell by around 4% on Monday. Investors worry about global energy demand given ongoing COVID lockdowns in China and the potential for higher interest rates in the US.
- The Brent crude price fell by US$4.33 or 4.1% to US$102.32 a barrel.
- US Nymex crude price fell US$3.53 or 3.5% to US$98.54 a barrel.
- Base metal prices fell by between 1.4-6.1% on Monday with nickel down the least and zinc down the most.
- The gold futures price fell by US$38.30 or 2.0% to US$1,896 an ounce.
- Spot gold was trading near US$1,897 an ounce at the US close.
- The iron ore futures price fell by US$3.56 or 2.3% to US$149.73 a tonne.
Australian market
Are we heading for a recession?
UBS has warned that Australia could enter recession territory if interest rates are lifted too quickly.
The Reserve Bank of Australia (RBA), which is set to meet next Tuesday, has already hinted it could bring interest rate rises forward, beginning in May.
The money market currently predicts 309 basis points of RBA rate hikes in the next 12 months, with the cash rate expected to hit 2.42% by the end of 2022 and 3.19% by May 2023.
Any rise of this magnitude could see variable mortgage rates rise above 5% compared with 2% currently.
That number means a serviceability rate of more than 8%.
While there are expectations the RBA will raise rates next month, Westpac’s Bill Evans predicts the central bank will implement a 40 basis points hike in June.
UBS Australia chief economist George Tharenou predicts a hike of 15 basis points in June or possibly May.
Tharenou believes core inflation, which according to Bloomberg is expected to hit 1.2%, quarter on quarter, and 3.4%, year on year – the most since mid-2009 – “is well above the RBA’s implied forecast of about 3% and would mean that core inflation already exceeded the RBA’s expected peak of 3.25% in the June quarter.”
Tharanou believes the trimmed-mean CPI would peak above 3.5% in the June quarter. “This is a hawkish development for the outlook for the RBA cash rate, at least relative to our dovish view; albeit we still think market pricing is too aggressive at about 2% this year and 3.25% next year, as this could crash the housing market and cause a recession,” he said.
UBS expects the first hike of 15 basis points to 0.25% to be delivered June.
“That said, the risk is that the more aggressive 50 basis point hikes by global central banks suggests the RBA could move more quickly,” Tharenou said.
“However, a caution for the RBA is the drop in consumer sentiment in April.”
US markets
Musk secures Twitter
Elon Musk can now drive his own social media network after Twitter’s board accepted a US$44 million buyout ($54.20 per share) of the listed company.
Once the deal is finalised, Twitter will be run as a private company.
One thing Musk will do is encourage free speech tweeting, ‘I hope that even my worst critics remain on Twitter, because that is what free speech means’.
The world’s richest man informed the world that he had $46.5 billion to buy Twitter on April 14.
Just over 10 days later, Twitter accepted the bid.
The news sent Google into meltdown on Monday with over 200,000 searches for “Elon Musk Twitter”.
Musk plans to crack down on bot and spam accounts, and introduce an edit button, which has been on users’ wish lists for some time.
“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” Musk said in the release announcing the deal.
“I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spambots and authenticating all humans. Twitter has tremendous potential — I look forward to working with the company and the community of users to unlock it.”
Shares of Twitter Inc (NYSE:TWTR) were up 6.3% during Monday’s trading after the deal was confirmed.
European markets
Europe hits six-week lows as Macron victory could rekindle positive sentiment
European stocks have fallen to their lowest point in six weeks, dragged down by concerns over a more aggressive Federal Reserve and the spread of COVID-19 in China.
China has locked down some areas of Beijing and ordered mandatory COVID-19 testing in a district.
The bad news outweighed optimism over French President Emmanuel Macron’s re-election.
European markets are “looking back to the risk-off lead elsewhere”, said Ilya Spivak, head of Greater Asia at DailyFX. “Stocks were not ready to focus on the larger, Fed-driven move lower until the election had passed.”
Le Pen cut Macron’s victory margin by half since the last time they battled for power. However, Macron is believed to be a more market-friendly influence. French equities outperformed other European markets during his first term.
“The short-term outperformance of French domestic stocks into the vote signalled the market had been pricing in a Macron win, but it’s still a potential negative off the table and should help stabilise European stocks this morning within the context of the broader global weakness,” head of EMEA trading at Cowen in London Carl Dooley said.
Macron now faces an uphill battle to win a crucial majority in June legislative elections that will enable him to implement his agenda at a time of surging inflation and a raging war in Europe.
More broadly, European investors are bracing for this year’s busiest week of earnings season.
The Stoxx 600 Europe Index fell 1.8%, the lowest since March 15.
Miners and energy led the declines as iron ore and oil slumped on a deteriorating demand outlook. Utilities and personal care stocks outperformed.
The German Dax lost 1.5% and the UK FTSE fell by 1.9%. In London trade, shares of Rio Tinto fell by 5.2%. Shares in BHP fell by 6.3%.