ASX to slide, US stocks drop on renewed inflation, rate anxiety

The yield on the US 10-year note leapt 15 basis points to 2.55 per cent in New York; the two-year was at 2.51 per cent and the five-year at 2.70 per cent.

“Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19,” she added. Officials next meet May 3-4.

Brainard’s policy comments suggest she is somewhere near the median estimate of seven rate increases this year, but also prepared to go faster if inflation doesn’t subsidize.

“Currently, inflation is much too high and is subject to upside risks,” she said. “The committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

“On the other side, I am attentive to signals from the yield curve at different horizons and from other data that might suggest increased downside risks to activity,” she said.

On Wall Street, all three major benchmarks were lower with the tech-heavy Nasdaq tumbling the most. The NYSE Fang + Index fell 3.3 per cent. The VIX was more than 13 per cent higher at 21.03.

Consumer discretionary and information technology paced seven of the S&P 500’s 11 industry sectors down.

Today’s agenda

No local data

Overseas data: China March Caixin services PMI; German February factory orders; US Federal Reserve March meeting minutes

Market highlights

ASX futures down 48 points or 0.6 per cent to 7447 at 7am AEST

  • AUD +0.5% to 75.79 US cents
  • Bitcoin on bitstamp.net -0.1% to $US45,881.64 at 7.05am AEST
  • On Wall St: Dow -0.8% S&P500 -1.3% Nasdaq -2.3%
  • In New York: BHP -2% Rio -1.1% Atlassian -5.5%
  • Tesla -4.7% Apple -1.9% Amazon -2.6%
  • In Europe: Stoxx 50 -0.8% FTSE +0.7% CAC -1.3% DAX -0.7%
  • Spot gold -0.5% to $US1922.84 an ounce at 2.37pm New York time
  • Brent crude -1.2% to $US106.25 a barrel
  • US oil -1.6% to $US101.63 a barrel
  • Iron ore flat at $US160.80 a tonne
  • 2-year yield: US 2.51% Australia 1.92%
  • 5-year yield: US 2.70% Australia 2.70%
  • 10-year yield: US 2.55% Australia 2.85% Germany 0.61%
  • US prices as of 4.59pm in New York

From today’s Financial Review

Crypto leaders fear Australia will miss out as UK unveils plan: Former ASIC chairman Greg Medcraft and venture capitalist Mark Carnegie say Australia must develop a plan that encourages digital asset technology and investment.

RBA loses ‘patience’, signals June rate rise: Upcoming data showing wages and inflation accelerating will prompt the Reserve Bank of Australia to raise interest rates as soon as June.

Chanticleer: RBA’s inflation message for investors: There remains a disconnect between the views of economists markets and financial markets – but inflation can be an investor’s best friend, writes Tony Boyd.

Star gave bank fake letters, ‘probably’ shredded document: The Star Entertainment Group also failed to give the dirty money monitor access to bank accounts, an inquiry has heard.

United States

Twitter said it will offer Tesla boss and entrepreneur Elon Musk a seat on its board of directors, a position he plans to use to bring about significant improvements at the social media site.

Musk’s appointment will potentially block chances of a takeover bid because the billionaire cannot own more than 14.9 per cent of Twitter’s stock either as an individual shareholder or as a member of a group as long as he is on the company’s board.

General Motors and Honda Motor said they will develop a series of lower-priced electric vehicles based on a new joint platform, producing potentially millions of cars from 2027 in a bid to beat Tesla in sales.

Apple said it will host its annual developers’ conference in an online format for the third year in a row, from June 6 to June 10.

The iPhone maker is expected to provide updates on new software, including the iOS 16, at the conference.

Europe

The pan-European STOXX 600 index was up 0.2 per cent, paring back some gains made earlier in the day, while France’s benchmark CAC 40 index lost 1.3 per cent to clock its worst day in nearly a month.

French markets woke up to the risk of far-right candidate Marine Le Pen winning this month’s elections against Emmanuel Macron after Le Pen captured 48.5 per cent of voter intentions in a poll on Monday – the highest she has ever notched.

“A victory for Le Pen would worsen public finances and place a question mark over France’s place in Europe, unnerving investors,” said Jessica Hinds, senior Europe economist at Capital Economics.

“At best, (Le Pen) would undermine and frustrate European policymaking and at worst, seek to dismantle EU structures from the inside… If polls continue to move in her favour, investors are likely to become much more concerned,” Hinds said .

The spread between the yield of 10-year French and German government bonds – the premium demanded by investors to hold French debt – rose to 54 basis points, levels unseen since the COVID-19 crash of 2020.

Asia

Markets in mainland China and Hong Kong were closed for a public holiday on Tuesday, and are set to reopen on Wednesday.

The COVID-19 outbreak in China’s largest metropolis of Shanghai remains “extremely grim” amid an ongoing lockdown confining around 26 million people to their homes, a city official said Tuesday.

The director of Shanghai’s working group on epidemic control, Gu Honghui, was quoted by state media as saying that the outbreak in the city was “still running at a high level”.

China has sent more than 10,000 health workers from around the country to aid the city, including 2000 from the military, and is mass testing residents, some of whom have been locked down for weeks.

Currencies

The overvaluation of the US dollar might be close to its peak, while China’s currency has continued to climb even further above its so-called fair value level, according to Bank of New York Mellon.

Accelerating global inflation is likely to spur a more hawkish response from major developed-market central banks outside the US, closing the policy gap to the Federal Reserve and reducing one of the greenback’s current tailwinds. “This may cap USD overvaluation near current levels,” Daniel Tenengauzer, BNY Mellon’s head of markets strategy, said in a note to clients.

The Bloomberg dollar index, a measure that gauges the greenback against a basket of peers, has been buoyed by expectations for an even faster tightening of policy by the US central bank and in March reached levels unseen since mid-2020, when pandemic-related concerns were at the fore.

Commodities

Copper prices hit a four-week high as a fall in output from top producer Chile and pressure for more sanctions on Russia, another large producer, raised supply risks.

Benchmark copper on the London Metal Exchange (LME) was down 0.5 per cent at $US10,414 a tonne at 1605 GMT after reaching $US10,580, near last month’s record high of $US10,845.

Australian share market

ASX advance loses steam as RBA spooks investors: The local market added 0.2 per cent on Tuesday, shedding most of its gains after the RBA indicated a faster path to raising rates.

‘Wall of private capital’ chasing M&A deals on ASX: The wave of mergers and acquisitions that gripped the Australian sharemarket in 2021 is yet to run its course, with private capital still hunting for a deal.

street talk

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