US markets were lively in post-public holiday trade, with investors keen to pick up bargains across mega-cap growth and energy companies. Oil and gas were strong performers, as were some big names: Apple was up 3.3%, Microsoft gained 2.5% and Tesla received a 9.4% bump.
All three key indices rose – the Dow by 641 points or 2.2%, the S&P 500 index by 2.5% and the Nasdaq index by 271 points or 2.5%.
The ASX is expected to continue to claw back last week’s losses today, with ASX futures up 44 points or 0.7% to 6,459 early this morning. The Aussie dollar was also looking slightly stronger, at US69.95 cents at its highest point yesterday.
Charting our way back to target range
The market is pricing in interest rates of 4% by the end of the year, though RBA governor Dr Phillip Lowe isn’t quite as hawkish on this, saying he doesn’t expect it will come to that.
“To get the 4% we would have to increase interest rates at 50 basis points at the remaining six meetings for this year and have a 75-basis-point increase in there as well,” he said yesterday.
Nevertheless, we should expect rises as we chart our way back to the target 2 to 3% inflation, and with current projections running at around 7% by the end of the year, the only way is up for rates.
Wage warning
Prime Minister Anthony Albanese presided over his de facto election promise of a wage rise in line with inflation - 5.2% - for those on the lowest wages, but it looks as if this may have been a one-off.
In his comments yesterday, Dr Lowe indicated that this type of wage increase will be unsustainable if we are to be successful in keeping a lid on inflation.
“If wage increases become common in the 4-5% range, then it is going to be harder to return inflation to 2.5%,” Lowe said in a speech to the American Chamber of Commerce in Australia yesterday.
“I was complaining when they started with a two, I hope I don’t get into an environment where I’m complaining they have a five in front of them.
“Three-and-a-half is the anchoring point that I want people to keep in mind. I know it’s difficult when inflation is higher than that.
“In the 1970s we got into trouble because wages growth responded mechanically to the higher inflation rate. We had higher inflation, wages responded and then that becomes persistent.”
Chinese investment
Chinese investment in Australia has plummeted since 2020, says a report by KPMG and The University of Sydney. The report said that Chinese firms invested just $808 million in Australia in 2021, compared to $2.5 billion in 2020, and that investment was now at its lowest level since 2007.
At the height of the Chinese investment boom, when China was dependent on Australian natural resources, the country plunged an astonishing $19.1 billion into Australian interests.
China appears to be turning its attention to Europe and South America, but Chinese companies still have extensive holdings in Australia, including in infrastructure, water, energy and mining.
It will be interesting to see which way the relationship goes now, following the recent change of government in Canberra.
Energy stalemate to end … for now
The week-long suspension of the wholesale energy market by the market regulator AEMO, to save blackouts and load-shedding, could be over by tomorrow.
The energy market regulator sat down with the operators yesterday and is set to return to the ordinary wholesale market tomorrow. AEMO leaves retailers with a warning that energy woes are not yet over, and that they will need to get their house in order.
In other news
Global oil prices are up – Brent crude by 0.5% to US$114.65 a barrel and US Nymex crude by 1% to US$110.65 per barrel – in response to continued tight supply and increased demand in the US and Europe and a prediction from Exxon Mobil Corp CEO Darren Woods that these tight oil markets would extend for the next three to five years.
Base metal prices rose by up to 3%, with zinc leading the charge and lead going its own way, down 0.1%. Gold futures fell slightly, as did iron ore.