The ASX is set to fall today after a choppy day on US markets. ASX 200 futures are down 1.1% to 6,471 this morning.
Wall St saw stocks tumble and then recover. The S&P 500 and Nasdaq Composite ended higher, despite intraday volatility and investors keeping an eye on signs of a recession. The Dow Jones Industrial Average lost 0.4%, or about 130 points, to finish near 30,967. At the session's low, the blue-chip index traded about 600 points lower. The S&P 500 index gained a measly 0.2%, while the Nasdaq Composite Index finished 1.8% higher.
Interestingly, there seems to be a rotation back into tech – the one sector that has been battered the most since the COVID pandemic started a couple of years ago. And in a reversal of fortune the energy and material sectors were battered yesterday.
According to Investco, commodities experienced their fourth-worst day in 16 years, with Brent Crude down almost 10%. Iron Ore futures also came under pressure following a new wave of COVID cases and mass testing in China. Gold hit a nine-month low.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0440 to US$1.0235 and was near US$1.0265 at the US close.
- The Aussie dollar fell from near US68.75 cents to near US67.60 cents and was near US67.95 cents at the US close.
- The Japanese lifted from 136.30 yen per US dollar to JPY135.55 and was near JPY135.85 at the US close.
- Global oil prices slumped by 8-9% on Tuesday on fears that aggressive rate hikes by central banks could cause a global recession. Reuters also reported that "Shanghai said it would begin new rounds of mass COVID-19 testing of its 25 million residents, reigniting worries about potential lockdowns."
- The US dollar strengthened, making dollar-denominated commodity purchases more expensive for buyers in Europe and Asia.
- The Brent crude price fell by US$10.73 or 9.5% to US$102.77 a barrel.
- The US Nymex crude price fell by US$8.93 or 8.2% to US$99.50 a barrel.
- Base metal prices were weaker by up to 4.3% on Tuesday with copper leading the way. But nickel was the exception, up 0.6%.
- The gold futures price fell by US$37.60 or 2.1% to US$1,763.90 an ounce.
- Spot gold was trading near US$1,767 an ounce at the US close.
- The iron ore futures price rose by US$3.48 or 3.2% to US$113.42 a tonne.
Australian market
No respite on fuel price
Drivers can expect to continue to pay over $2 per litre at the pump, with Treasurer Jim Chalmers ruling out an extension to the fuel excise cut.
In March, the Morrison government slashed the excise to de-stress Australian purse strings. It saved consumers about 20 cents per litre and cost the taxpayer about $3 billion.
However, the relief is about to end.
“That six-month petrol price relief … ends in September,” Treasurer Jim Chalmers told ABC Radio.
“To extend it for another six months would cost another $3 billion. To extend it indefinitely would cost the budget a lot of money and we have to weigh all these things up responsibly.
“We can’t do everything we would like to do when you’ve got a budget which is heaving with a trillion dollars in debt.
“You’ve got to work out where could investment of taxpayer dollars give taxpayers the best bang for their buck.”
Corporate debt slashed
Corporate debt has been slashed by more than 20% in the last financial year, with miners leading the way including a dramatic debt reduction by BHP Group Ltd (LSE:BHP, ASX:BHP), which accounted for two-fifths of the fall.
Janus Henderson's head of Australian Fixed Interest Jay Sivapalan explained, “While corporate debt in the Asia Pacific region rose in financial year 2022, by contrast, eight in 10 companies in Australia repaid debts during the year.
"Our view is that economic growth within Australia in the very near term is likely to remain strong with labour markets strengthening driven by pent-up economic activity from the pandemic period and deferred consumption.
“That said, a pandemic downturn ‘like no other’, means that a recovery ‘like no other’ is likely to be experienced. At the very least, the pricing of corporate bonds will need to adjust for current dynamics as economies re-emerge from the economic nadir.
"Delinquencies and defaults of non-government assets are almost certain to lift from their historically low levels when the policy support enjoyed over the past few years is withdrawn. With this in mind, avoiding the temptation to buy lower-quality credit while this policy normalisation is underway will be important.
“There is no doubt that a bear market is an uncomfortable place for investors but for those looking at corporate bonds, yields are far more attractive than in recent years. Amongst the volatility lies some great targeted investment opportunities in higher-rated, higher-quality corporate debt securities.”
Australian focus
- Australian company debt dropped by 21.5% on a constant-currency basis over 2021/22 as a result of booming cash flow from local miners.
- Mining group BHP accounted for two-fifths of the dramatic reduction in Australia.
- Sharp rebounds in profits among Australian companies along with debt repayments pushed Australia’s corporate debt-to-equity ratio to its lowest level in eight years.
Global picture
- Global corporate net debt fell by 0.2% to US$8.15 trillion (A$11.05 trillion) – with more to come.
- Surging cash flow funded record dividends, share buybacks and debt repayment.
- Oil, mining and cars saw the biggest debt reduction globally.
- Rising bond yields have led to redemptions in the high-yield segment in particular.
- Debt sustainability measures are strong and improved significantly in 2021/22.
- Janus Henderson expects global net debt to fall by US$270 billion (A$365.9 billion) in 2022/23, down 3.3%
US markets
Global growth fears weighed down the energy sector by 4.0% and materials by 2.0%.
A keen eye will also be focused on the minutes from the June Federal Reserve on Wednesday US time and the non-farm payrolls data (employment) on Friday.
US treasuries rose on Tuesday (yields lower). US 10-year yields fell by around 7 points to near 2.83% and US 2-year yields fell by around 2 points to near 2.83%.
European markets
Recession fears drove down the markets.
Oil & gas stocks fell by 6.3% while miners lost 5.2% and utilities lost 2%.
Shares in SAS fell 10.2% after the Scandinavian airline filed for bankruptcy protection in the US.
The pan-European STOXX 600 index fell by 2.1% - the worst session in two weeks.
The German Dax index and the UK FTSE index both fell by 2.9%.
In London trade, shares of Rio Tinto fell by 4.0% and shares in BHP fell by 3.1%.