The ASX is set to open flat this morning after mixed results on Wall St. The S&P/ASX 200 snapped a four-day winning streak on Wednesday, tumbling 0.9%, or 63.4 points, to 6,700.2 and today won’t be too much better – if at all.
Overnight, the S&P 500 fell for a third straight day as recession risks continue to climb. A first-quarter GDP revision was disappointing, with Fed chair Jerome Powell warning that there’s no guarantee of a soft landing for the US.
“We think that there are pathways for us to achieve the path back to 2% inflation while still retaining a strong labour market. We believe we can do that,” Powell said, during a panel discussion with other top heads of central banks at a European Central Bank policy conference in Sintra, Portugal.
He added that “there’s no guarantee that we can do that”.
“It’s obviously something that’s going to be quite challenging,” he said noting the war in Ukraine and other “events of the last few months”.
Powell was, however, upbeat about the health of the US economy, highlighting the health of households and businesses and said the Fed was engineering slower growth, to allow supply to catch up with demand.
The “biggest mistake” would be to fail to restore price stability, he said.
The Fed “will not allow a transition from a low inflation environment into a high inflation environment”.
Dow Jones Industrial Average gained 82 points, or 0.3%, to end at 31,029.31. The S&P 500 fell 2.27 points, or 0.1%, to close at 3,818.83 and the Nasdaq Composite COMP shed 3.65 points, a fall of less than 0.1%, ending at 11,177.89.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0535 to lows near US$1.0430 and was near US$1.0440 at the US close.
- The Aussie dollar held between near US68.60 cents and US69.00 cents and was near US68.80 cents at the US close.
- The Japanese yen eased from 135.80 yen per US dollar to JPY137.00 and was near JPY136.65 at the US close.
- Global oil prices fell by around 1.5-2.0% on Wednesday. While short-term supplies remain tight, investors remain worried about global oil demand in the face of rising interest rates. OPEC+ oil producers started a two-day meeting also on Wednesday.
- The Brent crude price lost US$1.72 or 1.5% to US$116.26 a barrel.
- The US Nymex crude price fell by US$1.98 or 1.8% to US$109.78 a barrel.
- Base metal prices were mixed. Lead, aluminium and tin fell by up to 2.1% while other metals rose, with nickel up 2.7%.
- The gold futures price fell by US$3.70 or 0.2% to US$1,817.50 an ounce.
- Spot gold was trading near US$1,819 an ounce at the US close.
- The iron ore futures price fell by US17 cents or 0.1% to US$130.11 a tonne.
Australian markets
The Australian Energy Market Operator, otherwise known as AEMO has said Australia needs to accelerate away from coal to renewables and sanction more than $10 billion of transmission projects.
The operator, which runs the national electricity network, said the country was undergoing a “complex, rapid and irreversible” change to its energy system and will need a nine-fold increase in wind and solar capacity to meet 2050 emissions targets.
“I think recent events in Australia and overseas have really just underscored the need for urgent investment in renewables, firming and transmission so that we can de-link ourselves from these international factors and provide Australian homes and businesses with the most affordable, secure and reliable energy,” AEMO chief executive Daniel Westerman told The Australian.
As energy prices continue to surge on the back of the Ukraine war, a global gas crunch and Australia’s reliance on old coal-fired power stations, G7 leaders have now turned tail back to gas.
However, this is seen as just a short-term solution, particularly by Australia’s new government.
Federal Energy Minister Chris Bowen said Australia must accelerate a shift to greater renewable supplies.
“One source of energy that no geopolitical situation can interrupt in relation to our supply chains and that’s the sun to our land-mass and the wind on and off our shores. That’s good energy security and storing that is a matter of national security,” Bowen told the National Press Club.
AEMO will release its final blueprint for power grid investment over the next 30 years on Thursday, which will posit a policy to shut down two-thirds of coal capacity by 2030.
It expects that all of Victoria’s brown coal plants would be retired by 2032 and says we could see earlier closures. This is compared with plans by Alinta to run Loy Yang B until 2047.
“The gas and coal price volatility hitting global energy markets from the first half of 2022 places additional pressure on the profitability of Australia’s generators, raising uncertainty – and the possibility of unexpected early closures,” the AEMO said.
As for transmission, the operator says five major projects to be built as soon as possible are required to cover 10,0000 kilometres that link renewable supplies.
The five schemes are the HumeLink, which would connect the expanded Snowy Hydro scheme to southern NSW; the VNI West interconnector between NSW and Victoria; a boost to the existing network outside Sydney’s Ring; the giant New England renewable energy zone connection and the Marinus (NASDAQ:MRNS) Link, a second power cable connecting Tasmania to Victoria.
“For each of the five transmission projects that we’re talking about, what we’re calling for is for them to be progressed as urgently as possible,” Westerman said.
US markets
The US markets made early gains, before mixing things up.
Those gains faded with Jerome Powell’s comments as well as corporate earnings reports.
Investors focused on a mixed bag of corporate earnings results trickling out ahead of the mid-July quarterly deluge as they sought insight insights into whether large inventories and inflation pressures bite profit margins.
“It remains to be seen, but it feels like the market is expecting profit margins to be squeezed, and profit to be revised lower,” Natixis Investment Managers Solutions portfolio manager Jack Janasiewicz told MarketWatch.
European markets
Lowered their colours.
A hawkish stance by global central bankers on inflation, concerned that higher interest rates could stifle economic activity, was noted by the region’s investors.
Certainly, Spanish inflation smashed expectations (in a bad way), with manufacturers and retailers carrying too much inventory.
Despite this, German data on consumer prices printed below forecasts.
The pan-European STOXX 600 index fell for the first time in four days, down by 0.7%. Real estate fell by 3.5%, auto lost 2.6% with banks and miners down by just over 1%.
The German Dax index lost 1.7% and the UK FTSE index slipped 0.2%.
In London trade, shares of Rio Tinto fell by 1.0% and BHP shares eased 0.1%.