The ASX looks set to fall today, after Wall Street did a U-turn overnight.
The Dow tumbled 1,160 points or 3.6% in the worst day’s trade since the height of the pandemic. The S&P 500 index fell 4% and the Nasdaq lost 4.7%.
Retailers were some of the biggest losers, as rising fuel and freight costs continue to bite.
Target’s first-quarter profit fell by half and the company warned of more pain to come, with rising fuel and freight costs hitting its bottom line – shares in the retail giant fell by 24.9%, the biggest drop since the 1987 stockmarket crash. Walmart (11.4% Tuesday and then 6.8% Wednesday), Tesla (6.8%) and Apple (5.6%) all experienced steep losses.
Inflation is the problem
We’ve enumerated the background settings before, but one factor persists – discomfort about where inflation is going. The markets appear to have twin, conflicting concerns that rates will continue to rise month on month to curb inflation, but also that they might not be severe enough to beat it.
And the issue is genuinely global – the UK has joined the US in the high inflation stakes, with official figures showing prices are rising at a rate not seen for 40 years.
Bernanke tips stagflation to come
Ex-chair of the Federal Reserve, Ben Bernanke, who served his term during the height of the global financial crisis, has indicated that he thinks the central bank should have been more hawkish and moved earlier on inflation.
“Even under the benign scenario, we should have a slowing economy,” he told the New York Times.
“And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high.
“So you could call that stagflation.”
The Fed is now in a quandary – how does it contain inflation without tipping the world’s biggest economy into a recession?
Jobless rate low, but also wages
Back home, today’s labour market figures are expected to show that unemployment has dipped to 3.8% - the lowest level in nearly 50 years.
This is the figure the Morrison Government has been waiting for, and it is bound to be the focus of today as we head into the final 48 hours of the campaign.
The data will be released at 11.30am AEST today. ANZ analysts think the data for April will show that 30,000 new jobs were added during the month, which will take the headline figure under 4%.
Yesterday’s wages figures were at record lows (2.4%), swamped by soaring inflation (5.1%), indicating that Australian workers haven’t had a raise in real terms for at least a decade.
In other news
The Aussie dollar was hovering beneath the 70-US-cent mark overnight, while base metals, gold, iron ore and fuel were all down.
According to Commsec, base metal prices fell by between 0.8% and 3.1% on Wednesday with nickel down the least and tin down the most.
Global oil prices fell by 2.5% on Wednesday, reflecting flat trader sentiment and continuing anticipation that the US will ease sanctions against Venezuela, allowing it to lift output.
Gold futures fell by US$3.00 or 0.2% to US$1,815.90 an ounce. Spot gold was trading around US$1,816 an ounce, while iron ore futures fell US$1.66 or 1.3% to US$129.92 a tonne.