The ASX finished higher yesterday, but that is not expected to be the case today, with ASX Futures (SPI 200) pointing to the ASX 200 opening 58 points lower, down -0.85%.
Overnight US stocks closed sharply lower fuelled by signs of a strong labour market that could lead the Federal Reserve to be more aggressive in cooling the high inflation economy.
The Labor Department said yesterday that US job openings rose to 11.2 million in July - first rise in four months - while the number of people quitting remained high even as it edged down slightly in July.
The Dow Jones Industrial Average finished around 1% lower, while the S&P 500 SPX each fell around 1.1%.
Here’s what we saw (source commsec):
- The Euro rose from lows near US$0.9980 to highs near US$1.0055 and was near US$1.0020 at the US close.
- The Aussie dollar fell from highs near US69.55 cents to lows near US68.45 cents and was near US68.55 cents at the US close.
- The Japanese yen eased from 138.00 yen per US dollar to JPY139.05 and ended US trade near JPY138.75.
- Global oil prices fell by 5.5% on Tuesday on ongoing fears that higher global interest rates could crimp economic activity and therefore oil demand. Also weighing on oil prices were comments from Iraq's state-owned oil marketer SOMO that the country's oil exports had been unaffected by recent unrest in the country.
- The Brent crude oil price fell by US$5.78 or 5.5% to US$99.31 a barrel.
- The US Nymex crude oil price fell by US$5.37 or 5.5% to US$91.64 a barrel.
- Base metals fell by as much as 4.5% on the London Metal Exchange on Tuesday with tin down the most while lead was flat.
- The gold futures price fell by US$13.40 an ounce or 0.8% to US$1,736.30 an ounce.
- Spot gold was trading near US$1,725 an ounce at the US close.
- Iron ore futures fell by US63 cents or 0.6% to US$104.49 a tonne.
US recession on the cards
Economists are predicting a ‘whopper’ US recession.
“We will have a recession because we’ve had five months of zero M2 growth–money supply growth and the Fed isn’t even looking at it,” professor of applied economics at Johns Hopkins University Steve Hanke said in an interview with CNBC on Monday. “We’re going to have one whopper of a recession in 2023.”
M2 measures money supply including cash, cheque and saving deposits, and shares in retail money mutual funds and is used as an indicator of the amount of currency in circulation.
The measure has stagnated since February 2022, following “an unprecedented growth of money supply” starting with the COVID-19 pandemic in February 2020.
“There had never been sustained inflation in world history – that is inflation above 4% for about two years – that had not been the result of unprecedented growth of money supply, which we had starting with COVID in February of 2020,” Hanke said.
“That is why we’re having inflation now, and that’s why, by the way, we will continue to have inflation through 2023 going into probably 2024.”
After Jerome Powell gave his speech at Jackson Hole on Friday, Hanke said inflation was likely to be between 6% and 8% at the end of 2022 and 5% leaving 2023 into 2024.
“The problem we have is that the chairman does not understand, even at this point, what the causes of inflation are and were,” Hanke said. “He’s still going on about supply-side glitches. He has failed to tell us that inflation is always caused by excess growth in the money supply, turning the printing presses on.”
Former chairman of Morgan Stanley (NYSE:MS) Asia and former Federal Reserve economist Stephen Roach is also predicting a recession.
“We’ll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in. They haven’t kicked in at all right now,” he told CNBC.
Gorbachev's legacy of freedom still dividing countries
Novel prize winner and former Soviet leader Mikhail Gorbachev has died aged 91.
Best known for reforms that led to the end of the Cold War and for changes that led to the downfall of the authoritarian Soviet state, the freeing of Eastern European nations and the end of East-West nuclear confrontation, he was a divisive figure in his motherland.
There was a coup against him in 1991 as myriad republics declared their independence and Russians blamed him for the fall of the Soviet Union.
With the current Russia-Ukraine conflict, there is no doubt those that opposed the changes are now fighting back.
“I see myself as a man who started the reforms that were necessary for the country and for Europe and the world,” Gorbachev told The AP in a 1992 interview.
“I am often asked, would I have started it all again if I had to repeat it? Yes, indeed. And with more persistence and determination,” he said.
He never had the opportunity. Gorbachev ran for office again in 1997 and only received 1% of the vote. He later resorted to doing an ad for Pizza Hut which turned him into a national joke.
However, his intentions always seemed noble.
“Our society was stifled in the grip of a bureaucratic command system,” Gorbachev wrote in his memoir. “Doomed to serve ideology and bear the heavy burden of the arms race, it was strained to the utmost.”
“The process of renovating this country and bringing about fundamental changes in the international community proved to be much more complex than originally anticipated,” Gorbachev told the nation as he stepped down.
“However, let us acknowledge what has been achieved so far. Society has acquired freedom; it has been freed politically and spiritually. And this is the most important achievement, which we have not fully come to grips with in part because we still have not learned how to use our freedom.”