The Australian stock market is expected to open on an optimistic note this morning after Wall Street rallied to close out a volatile day in the green.
ASX futures were up 37 points or 0.6% to 6,530 early this morning.
The dollar, defying predictions reported a couple of days ago, is down, trading at 67.80 US cents.
The Commonwealth Bank now warns that it could decline to 65 US cents by the end of this year as a result of slowing commodities and those pesky interest rates – though that bank and its comrade ANZ were nevertheless quick to pass on the latest 50bps rate rise in full.
Fed minutes front of mind
Fiscal policy was playing on the minds of US investors, who are processing what the minutes from the June 14-15 Federal Reserve meeting, released yesterday, mean for interest rates.
The minutes restated the central bank’s mission to get its arms around inflation, with big hikes in the order of 50 to 75 basis points ‘appropriate’ in the near term.
At this point, a 75bps rate rise has been priced in by the market but the handwringing by the bank about what it has to do sends a signal that it acknowledges there will be harm to the economy.
Stiglitz: rate rises “can be counterproductive”
Nobel Laureate economist Professor Joseph Stiglitz, appearing on the ABC’s 7.30 Report, had his own take.
“I’m not sure inflation is the most significant problem that we have,” he said. “We’re facing a crisis in our democracy, we’re facing climate change. To me, these are far more important issues than inflation.
“We will get inflation under control. I worry that if we raise the interest rates too fast and too much we will have a global recession. And paying more for food is hard. Not having a job at all is even harder.
On rate hikes, he said: “In some dimensions, they can be counterproductive. So the question here is to get the right balance in terms of interest rates.”
And on the 2-3% inflation target: “Where did that number come from? It was pulled out of thin air. There’s no scientific basis. It’s now become a convention that’s accepted.
“But in fact, economic research argues that when the economy is going through a transformation – and we’re going through a transformation, the green economy, the digital economy, the post-COVID 19 economy – you want to have probably a higher rate of target for your inflation.”
When pressed by host Sarah Ferguson, Stiglitz said he thought there was no danger in having inflation at 4 or 5%, possibly even higher, for a short period of time.
Russian invasion behind several global woes
Russian ambassador Alexey Pavlovsky bristled on breakfast radio this morning when he was asked if the invasion of Ukraine was behind current global food shortages. The exchange culminated in host Hamish McDonald chiding Pavlovsky: “This is not Russian state media, you can’t get away with making it up.”
Among some of the claims the ambassador made were that the west is “doubling down, prohibiting the Ukrainian side from going back to the negotiating table”.
“There are important existential reasons for Russia to start this operation,” he said.
“Operation will stop when reasons are removed.”
EU concerned that Kremlin will blink first
There is no doubt that the Ukraine 'operation' is pushing the EU to revisit its energy policies and cut ties with Russian fossil fuels. Several member countries are already suffering from energy cuts caused by the conflict.
European Commission chief Ursula von der Leyen said the bloc must make emergency plans to stave off a crisis in the event of a complete cut-off of Russian gas by the Kremlin.
"We also need to prepare now for further disruption of gas supply and even a complete cut-off of Russian gas supply," von der Leyen told the EU legislature.
"It is obvious: Putin continues to use energy as a weapon. This is why the commission is working on a European emergency plan," she said.
"We need to make sure that in case of full disruption, the gas flows towards where it is most needed. We have to provide for European solidarity."
Before the war, the EU relied on Russia for 40% of its gas supply. The nations have now pledged to ban 90% of Russian oil by the end of the year.
This week European oil and gas stocks fell by 6.3% while miners lost 5.2% and utilities lost 2%.
On Tuesday, the pan-European STOXX 600 index fell by 2.1% – the worst session in two weeks. The German Dax and the UK FTSE both fell by 2.9%.
It will be interesting to see where the current crisis of leadership in the UK takes that country in the next few weeks.
Global oil prices slump
Global oil prices slumped by 8 to 9% on Tuesday, reflecting fears that aggressive rate hikes by central banks are biting too hard.
Brent crude slid by US$10.73 or 9.5% to US$102.77 a barrel, while US Nymex fell by US$8.93 or 8.2% to US$99.50 a barrel.
News that Shanghai is about to begin new rounds of mass COVID-19 testing of its 25 million residents has also likely dampened demand.
Base metal prices were down by as much as 4.3% with the economic bellwether copper leading the way, dropping to its lowest level in 19 months.
The metal fell as much as 4.9% on Wednesday to $US7,291.50 a tonne on the London Metal Exchange, before resting at around $US7,440.