Today marks the quarterly release of the March Consumer Price Index inflation data, and the news is not expected to be good.
As City Index market analyst Tony Sycamore puts it: “It will likely be remembered as the final data point to confirm the end of an era of ultra-low interest rates in Australia and set the scene for an RBA interest rate hike as early as next month.”
The report is widely expected to show that headline CPI rose by 1.7% on last quarter and 4.6% year on year for the March quarter. This is expected to take core inflation above the RBA’s target band of 2-3% for the first time since 2010.
If this is what the Australian Bureau of Statistics’ report, expected at 11.30am AEST does indeed show, it will represent the biggest rise in the cost of living since before the peak of the global financial crisis.
Reasons for inflation – where do we start?
The reasons for the inflationary pressures are many and varied. They include higher transportation, fuel and food prices and supply bottlenecks as a result of the recent floods, lockdowns in one key supply country – China – and sanctions on another – Russia – and the tail-end of COVID, which is still wagging hard despite eased restrictions.
Sycamore and most other analysts now believe the RBA meeting in June is headed for a 40-basis-point rate hike and almost 240 basis points of rate hikes by year-end. It might be time to look at fixing those mortgage rates …
ASX expected to follow shaky US tech markets
The ASX is expected to drop this morning, following the US tech markets down. ASX futures were flat at close of play yesterday, down 1.4% to 7,175 at around 6.15am AEST.
The Australian dollar was trading at 71.2 US cents, its weakest point since mid-February. The slump is highlighted by how quickly it has dropped – 7% since early April, when it was hovering around 76 US cents.
IT markets are particularly susceptible to interest rate rises and there was a technology sell-off on Wall Street that intensified in the final hour of trade over fears of more aggressive hikes by the Fed. US interest rates are tipped to rise by half a percent at each of the bank’s next two meetings.
The Nasdaq was in bear market territory overnight – it shed 4%, closing at 12,494 points. To put this in perspective, it has dropped 22% from its November record high.
The S&P 500 lost 2.8%, finishing at 4,176, while the Dow Jones fell 2.4% to 33,241.
Reasons for buying Twitter – where do we start?
Elon Musk’s power play for the comparatively unimpressive social media platform Twitter, which barely ranks in the top 10 social media platforms globally, saw global shares in his electric car interest Tesla plunge by 12.2%, one of the worst falls in New York overnight.
Tesla’s market capitalisation is now down more than $US275 billion, or around 23%, since April 4, when Musk first hinted at the vanity project by announcing he had increased his stake in Twitter.
The ABC reports that the value of Musk’s own 17% stake in Tesla has atrophied by more than $US40 billion, which is almost twice the amount he personally pledged to fund the Twitter takeover. It’s unclear how this move will impact the wider EV market and its supply chains.
Bright spots for some
Certain commodities held the line overnight. Commsec reports that oil prices have bounced back following reports that Russian gas supplies to Poland have been halted.
Brent crude was up 3.2% to $US105.54 a barrel, spot gold edged up 0.4% to $US1,904.68 an ounce, and iron ore recovered 2.4% to $US138.95 a tonne, after heavy recent losses.