Australian shares look set to edge downwards today, as global markets continue to work their way through the ongoing toxic brew of war, inflation, supply chain issues and fears of a broader global slowdown.
This comes a day after $25 billion was wiped off the ASX and the US and European markets all had losses of more than 2%.
Overnight, Wall Street showed signs of recovery, but things might be about to get a lot worse. The US awaits fresh inflation data at midnight tonight, Australian time. The data is expected to show that headline inflation is slowing, thanks to stabilising oil prices, but core inflation is still on the way up.
European markets also ticked up from Tuesday’s two-month lows, with Germany’s DAX leading the way, but there is still a level of uncertainty as the war in Ukraine continues to rage.
Wages in focus
Wage growth was high on the list of topics for the leaders as they head into the final two weeks of a bruising election campaign.
ALP leader Anthony Albanese, asked yesterday if wages should keep pace with the current rate of inflation (5.1%), answered “absolutely”.
In the past, wage growth in line with inflation would be regarded as bare minimum growth – only meaning that wages should not go backwards, a position which would seem to make sense in a country with the lowest wages growth figures in the OECD.
The current conundrum is that inflation is already on a rolling boil, and wage movement will only turn up the heat.
China lockdown
China’s pursuit of zero COVID is yet another issue for global markets to contend with, with a third of the world’s manufacturing capacity based in the country. Along with supply chain reverberations, there is slowing Chinese demand for goods and services.
Last week, Starbucks suspended financial guidance for the next six months as a result of the downturn in demand from the coffee chain’s second biggest market.
"The situation in China is unprecedented," CEO Howard Schultz said.
"Conditions in China are such that we have virtually no ability to predict our performance in the back half of the year."
CNN analysts suggest that Biden may have to consider changing China policy settings to ease some economic problems, including dropping Trump-era tariffs on some Chinese goods, which would ease prices for US consumers.
Other US companies like Apple and Amazon have been grappling with the lockdown for some time, with Apple iPhone manufacturer Foxconn moving production to other sites, while also trialling a closed-loop factory set-up where workers live and work ‘on campus’.
The current lockdown gives the movement to diversify ex-China production in a range of sectors - which is already in train in the West for other reasons – extra urgency.
Along with the US, China is also waiting on inflation data this week.
Town square of twits
Elon Musk has confirmed he would reverse the Donald Trump ban if he were successful in his bid to takeover Twitter, saying that the platform does not fulfil its remit as a “digital town square” in its current guise.
Activist groups beg to differ, penning an open letter to Twitter advertisers warning that under Musk's management, "Twitter risks becoming a cesspool of misinformation, with your brand attached".
In other news
Global oil prices dropped 3% on Tuesday. US crude dipped below US$100 a barrel as the demand outlook was pressured by coronavirus lockdowns in China and growing recession risks. The strong US dollar made crude more expensive for the rest of us.
The Brent crude price fell by US$3.48 or 3.3% to US$102.46 a barrel. And the US Nymex crude price dipped US$3.33 or 3.2% to US$99.76 a barrel.
Base metal prices were weaker, with tin falling 4.3% and lead 1.9% lower. Aluminium was flat and nickel was up 0.8%. Gold futures were down 0.9% to US$1,841 an ounce.
The iron ore futures price fell by US$1.72 or 1.3% to US$130.27 a tonne, which Commsec attributes to speculation that Chinese real estate developer Sunac China Holdings could default on its dollar bonds.