The ASX is expected to dip today, following Wall Street’s lead overnight.
The brief moment of positive market sentiment appears to be last week’s news, as investors stare down a new month that brings with it more Federal Reserve meetings and the reality that we still live in 2022 – the year of war, pandemic fallout and the ongoing threat of a global recession.
Read: Are we headed for a global recession – and is copper an indicator?
We saw the Dow (-0.2%), the S&P 500 (-0.2%) and the Nasdaq (-0.7%) all fall, spooked by ongoing oil and gas woes and tightening monetary policy, with tech stocks, in particular, taking a beating.
“The last week’s robust gain did help investors to temporarily leave the recession and inflation problems on the blind side but the approach of a new month (with potentially more rate hike discussion) and the start of the second-quarter reporting season are both ‘the elephant in the room’,” said IG market analyst Hebe Chen.
ASX futures were down 9 points or 0.1% to 6,584 early this morning. The Aussie dollar rose to highs near 69.50 US cents and settled around 69.20 US cents as the markets closed in North America.
Where is the bottom?
US analyst Mark Hulbert says we’re not even close to the end of the bear market, warning that the US stock market hasn’t yet “experienced the extreme pessimism seen at major bottoms”.
This slump is signalled by capitulation, defined by Investopedia as “the dramatic surge of selling pressure … that marks a mass surrender by investors”, and according to Hulbert and others, we’re not there yet.
Hulbert warns investors to “be on the lookout for a selling climax, as evidenced by extreme bearishness among market timers, spikes in volatility and big drops in the market averages. If such a climax occurs, contrarian investors would sit up and take notice”.
Fuel volatile
Fuel prices rose overnight – Brent crude by 1.7% to US$115.09 per barrel and US Nymex crude was up 1.8% to US$109.57 a barrel.
All eyes were on the Group of Seven (G7) leaders for signs of oil and gas-related action against Russia, while Libya warned that production may stop in the next 72 hours due to unrest and Ecuador may also halt production in the next 48 hours due to cost of living protests.
Meanwhile, OPEC+ oil nations are to meet on Thursday to discuss production quotas.
G7 looks to counter influence
A Russian fuel cap wasn’t the only reason for the attention on the G7 meeting, with the group making a number of resolutions that are bound to make economic ripples.
One of these is the US$600 billion Partnership for Global Infrastructure, which was floated on Sunday at the summit to offer infrastructure loans and investments in emerging markets as part of a process of 'inclusive globalisation'.
An implied aspiration of the fund is to counter the influence of China’s Belt and Road juggernaut in these newer economies, though this went unsaid.
US President Joe Biden welcomed the new plan, framing it in terms of climate adaptation: “We need worldwide effort to invest in transformative clean energy projects to ensure that critical infrastructure is resilient to changing climate.”
The G7 also agreed on an import ban on Russian gold.
Battery of the nation
In Tasmania, there are high hopes that two undersea cables to the mainland, called the Marinus (NASDAQ:MRNS) Link, will propel its aspirations to export its hydro and other renewable energies via Victoria to the rest of the country.
Tassie benefits from a well-established hydroelectricity scheme that is the main source of energy for the state and aspires to double its 100% renewable energy output by 2040.
Work on the cables could start as soon as 2028 and will cost around $3.8 billion, a price that has been revised upwards and, unfortunately, is likely to continue to rise.
The cables would have a combined 1,500-MW capacity, enough to power up to 1.5 million homes – similar to the output of the former Hazelwood coal-fired power station in Victoria.
The ABC reports that the Australian Energy Market Operator (AEMO) is expected to list the Marinus Link as one of five key ‘actionable’ projects when it releases its latest plan to improve the grid on Thursday.