ASX futures are pointing to a more positive start today when trade begins.
The local stock market is in correction territory after a brutal run of losses driven by concerns about stagflation and the possibility of a recession next year.
Investors are watching the RBA’s next move and all eyes will be on governor Chris Lowe as he delivers a speech today entitled 'Economic outlook and monetary policy'.
ASX futures were up 0.7%, to 6,388 points, by 8:40am AEST on Tuesday.
The Australian dollar was up a little to 69.6 US cents but still hovering close to its weakest level in two years, in part because of weak iron ore prices (down 8% to US$112 a tonne).
US reckoning with largest rate hike since 1994
The US was closed for the Juneteenth public holiday, but futures pointed to a slight recovery when trade resumes, after the recent 75-basis-point rate hike – the largest rate move since 1994 – shocked investors.
S&P 500 futures gained 1.1%, Dow futures were up 0.9% and Nasdaq Composite futures were up 1.1%.
But Morgan Stanley (NYSE:MS) chief strategist Mike Wilson, who called the last three crashes, says the big hike increases the likelihood of a recession, saying the markets have been bearish precisely because the Fed is “hiking into a slowdown”, with few other tools at its disposal.
"It doesn't really change our intermediate-term view, unfortunately. I don't think this is going to solve the inflation problem overnight," Wilson told CNBC on Wednesday.
"It also raises the risk of a recession because you're bringing rate hikes forward even faster," he said. "The Fed is hiking into a slowdown, and they don't really have a lot of options."
Europe rallies for now
In the meantime, trading was brisk in Europe on Monday. The pan-European STOXX 600 index gained 1.0%, with bank stocks up 3.3%. The German Dax index rose 1.1% and the UK FTSE index was up 1.5%. In London trade, shares of Rio Tinto fell by 1.0% and BHP shares shed 1.6%.
European Central Bank chief Christine Lagarde re-stated that the bank would be raising rates at least twice over the next few months.
In France, things weren’t quite as rosy, with President Emmanuel Macron losing his absolute majority in the parliamentary elections. France’s CAC 40 index added only 0.6% on the news.
Crypto – the opposite of a safe haven?
Cryptocurrency continued its steep descent, which is unsurprising given its heavy reliance on sentiment in a market where sentiment is grim.
This market has slumped from a peak of US$70,000 in November 2021, tumbling sharply last week after crypto lending firm Celsius paused all account withdrawals.
The industry was already reeling following the collapse of the UST ‘stablecoin’, which was supposed to be worth US$1, and luna, its sister token, which in better times were worth up to a combined US$60 billion.
Bitcoin, the world’s largest cryptocurrency, has wiped out more than half of its value – 35% in this month alone. It dropped on Saturday to as low as $US17,593, sliding below the benchmark $US20,000 level for the first time since December 2020.
Bill Gates’ comments last week can’t have helped the volatile stocks. He poured scorn on cryptocurrencies and NFTs, saying they were “100% based on the greater fool theory”.
“I’m used to asset classes ... like a farm where they have output, or like a company where they make products,” Gates said.
In other news
Oil prices climbed in Monday’s trade as investors weighed supply shortages against the slowing global demand.
Brent crude rose by US$1.01 or 0.9% to US$114.13 a barrel, while US Nymex was up 71 US cents or 0.6% to US$110.27 a barrel.
Base metal prices were up on Monday - aluminium by 1.3% and copper by 0.3%, the latter recovering after nine-month lows brought about by the continued threat of a global recession. Tin fell by 1.3%.
The gold futures price rose by less than 0.1% to US$1,840.70 an ounce.
Iron ore futures, linked to the Aussie dollar because of trade with China, fell by US$3.38 or 2.6% to US$128.00 a tonne on the back of concerns about dwindling demand from that country as it prolongs its policy of zero-COVID.