ASX to slide, Wall St crashes again on rate outlook

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On Wall Street, stocks fell in a broad pullback. Consumer Staples led 10 of the 11 S&P 500 industrial sectors down; advance of energy with the price of oil.

In a note, JPMorgan’s Marko Kolanovic and Bram Kaplan again said they saw reason to buy. “We remain positive on risky assets due to near-record positioning, bearish sentiment and our view that there will be no recession given US consumer support, the global reopening post- COVID and China’s recovery and recovery War in Eastern Europe is a significant risk to the cycle but will likely converge on a definitive solution in H2.

“Despite the strong sell-off, we believe markets will recoup year-to-date losses and result in a broadly flat year. This is now a non-consensus ‘bullish’ view, with most strategists now being negative.”

Former New York Fed boss William Dudley said he saw potential for the US central bank to raise its key rate above 3%.

Separately, San Francisco Federal Reserve Chair Mary Daly said the Fed should tighten policy until inflation begins to decline toward its 2% target. “I think we just tweak the rate until we’re at least at breakeven, and then we look around and see what else needs to be done,” Daly said. She is not voting on politics this year.

Overnight, the Bank of Canada raised its key rate by 50 basis points to 1.5% and signaled that further hikes were to be expected. Bank of America said investors should brace for a potential 75 basis point move next month.

In its post-meeting statement, Canada’s central bank said, “The risk of high inflation taking hold has increased. The bank will use its monetary policy tools to bring inflation back to target and keep inflation expectations well anchored.

Today’s agenda

Local: April trade balance; New Zealand’s terms of trade in the first quarter

Overseas data: Eurozone April PPI; May US ADP Employment, April Factory Orders, April Durable Goods Orders

Market Highlights

ASX futures down 58 points or 0.8% at 7178 around 07:00 AEST

  • AUD -0.1% to 71.74 US cents
  • Bitcoin -6.5% to US$29,678.71 as of 07:00 AEST
  • On Wall St: Dow -0.5% S&P-500 -0.8% Nasdaq -0.7%
  • In New York: BHP +1.3% Rio -0.3% Atlassian +1.1%
  • Tesla -2.4% Apple -0.1% Amazon +1.2% Meta -2.6%
  • In Europe: Stoxx 50 -0.8% FTSE -1% CAC -0.8% DAX -0.3%
  • Spot gold +0.6% at $1,847.59 an ounce at 1:49 p.m. in New York
  • Brent +1.8% to $117.67 a barrel
  • Iron ore up US5¢ at US$136.55 a tonne
  • 10-year yield: United States 2.91% Australia 3.41% Germany 1.18%
  • US prices from 4:30 p.m. in New York

United States

Former New York Fed Chairman William Dudley said the U.S. central bank would continue to raise interest rates to rein in high inflation, dismissing speculation it would hold fire in September.

“The Fed is pretty confident that it needs to move quickly to something close to neutral,” he told Bloomberg. “The idea that at some point they’re going to pause and look around – of course that will happen at some point – but that will depend on the economic data.”

Dudley also said, “The market is valued at a top of the federal funds rate of 3%. I think we’re going to get there pretty easily, and the Fed will probably have to get past that eventually. »

Jamie Dimon, JPMorgan Chase & Co, the boss updated his weather outlook on the economy.

“It’s a hurricane,” Dimon told a banking conference, adding that the current situation is unprecedented. “At the moment it is rather sunny, things are going well. Everyone thinks the Fed can handle this. This hurricane is right over there on the road coming our way. We just don’t know if it’s a minor thunderstorm or Super Hurricane Sandy,” he added.

Last month, Dimon simply pointed to “storm clouds.”

Europe

European stocks fell on Wednesday as weak German retail sales and slowing factory activity in the eurozone stoked concerns about economic growth amid record inflation.

The pan-European STOXX 600 index fell -1.0%, after gaining as much as 0.4% earlier in the day. The benchmark lost 1.6% in May as soaring inflation stoked fears of aggressive central bank action.

German retail sales fell 5.4% more than expected in April, the data showed, while manufacturing growth in the eurozone slowed last month as factories faced supply shortages, prices high and falling demand.

Deutsche Bank economists have raised expectations for policy tightening from the European Central Bank and expect a rate hike of 50 basis points in September.

“All eyes will be on the ECB’s meeting in Amsterdam on Thursday June 9, where policymakers will try to reach a consensus on how quickly to ‘normalize’ monetary policy,” said Andrew Kenningham, chief economist for Europe at Capital Economics.

“Members of the Governing Council of the ECB are unanimous in believing that interest rates should be raised but divided on the speed with which they should intervene.”

British footwear brand Dr. Martens jumped nearly 20% after forecasting higher annual revenue growth, thanks to price hikes made in response to inflation and higher sales of its shoes and boots .

Goods

Fitch Solutions becomes slightly more positive, in the short term, for iron ore: “We are revising our iron ore price forecast for 2022 upwards from US$120/tonne to US$130/tonne due to support from stronger-than-expected price during worst of lockdowns in China, rising demand for H222 and short-term supply constraints.

“We maintain our 2023 guidance of USD 110/tonne as inflation eases, global growth slows and supply constraints ease.”

Fitch said Chinese demand has started to rise again and will remain strong in 2022-23 with the government’s renewed stimulus to the infrastructure sector in the face of slowing economic growth.

“On the supply side, we do not expect a significant increase in iron ore supply from major producers who will focus on value rather than volume in 2022, and that is Adding to elevated supply risks from weather-related issues, continued operational disruptions from COID-19, rising fuel prices and supply chain issues.

“Longer term, we expect iron ore prices to remain on a multi-year downward trend, with prices expected to decline to US$50/tonne by 2031.”

RBC Capital Markets raised its commodity forecast: “We are raising our 2022/2023 base, bulk and battery commodity price forecast by 27% and 24%, respectively. Our biggest price increases come from lithium complex, nickel and coal (met and thermal).

“On average, we are around 3% below consensus commodity price estimates for major commodities, iron ore (below), metallurgical coal (below) and thermal (at above) being the main outliers.

“On iron ore, we are increasing our forecast by 10%/13% to US$112/t and US$85/t for 2022/2023E, but still expect a shortfall at 2H and CY23, with prices falling to cost marginal (US$75 -85/t).

For lithium and nickel, our forecast increases in case of stronger demand/sales of electric vehicles. We are raising our 2022 spodumene prices >$4,000/t, with carbonate/hydroxide prices supported on limited spodumene availability. Specifically for nickel, we are signaling Indo supply risk and have price depressing surpluses over 2022-24. No change to the copper forecast. We maintain our downward price forecast ($3.75/lb in 2022) and forecast surpluses for 2023-24.

“For aluminum, our guidance is up 8%/4% from 2022/23E, to $1.35 and $1.20/lb, due to supply disruptions and rising costs. We are raising our met coal prices again due to the supply shortage, but we expect demand to have peaked, with prices falling in 2H22.”

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