The Australian equity market edged higher, with gains in financials and technology stocks offsetting heavy losses in energy and mining companies.
Key points:
- Investors fear aggressive US Fed rate hikes could lead to recession
- The Australian dollar has fallen 9.6% since its peak in April (76.6 US cents)
- Oil prices fell 4% on fears a global slowdown could reduce fuel demand
The ASX 200 index rose 0.4% to 6,534 points as of 12:10 a.m. AEST on Thursday.
Some of the performing stocks today were James Hardie (+4.7pc), Virgin Money UK (+4.5pc), Blackmores (+4.5pc), Metcash (+4.3pc) and Insurance Australia Group (+4pc).
On the other hand, gold miners St Barbara (-12.7pc), Ramelius Resources (-8.7pc) and Regis Resources (-4.1pc) fell sharply, along with Liontown Resources (- 6.2pc), Champion Iron (-5.7pc) and Novonix (-5.3pc).
US markets were weighed down by comments on inflation from Federal Reserve Chairman Jerome Powell, who appeared before the Senate Banking Committee on Wednesday (local time).
He said the Fed was “strongly committed” to bringing down inflation, which had hit a 40-year high, while trying not to cause a recession in the process.
However, Mr Powell said achieving a ‘soft landing’ for the US economy would be ‘very difficult’.
The Fed Chairman said he thought the US economy was currently strong, but acknowledged that a recession could come.
“And, frankly, the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and a still strong job market.”
The UK is also struggling with the rising cost of living. The latest figures showed that inflation had reached 9.1% in May. a new high of 40 years for the UK economy.
‘Global forces’ sink Australian dollar
The Australian dollar was buying 69.1 US cents, after falling 0.8% overnight.
But it fell even more than 1% against the currencies of the euro zone and Japan, to 65.5 euro cents and 94.3 yen.
The upcoming sharp downturn in the global economy will weigh on the Australian dollar as it is very sensitive to global forces,” said Carol Kong, currency strategist at Commonwealth Bank.
“Indeed, our forecast of a weakening Australian dollar to 62 US cents next year is supported by an expected sharp decline in the prices of key Australian commodities.”
“We assume that commodity prices fall by around 40% at the end of 2023, in line with our commodity analysts’ forecasts.”
Iron ore fell another 5.8% to US$109.35 a tonne, according to ABC data. The steel material is Australia’s biggest export to China, which is experiencing an economic downturn.
Ms Kong said “the recent fall in iron ore prices reflects market concerns. China’s promise to boost infrastructure investment may not materialize given China’s zero COVID policy.
“Not out of the woods yet”
Investors are trying to gauge how far stocks may fall as they assess the risks to the economy as the US Fed hikes rates to curb soaring inflation.
At the start of the month, the S&P 500 fell more than 20% from its January high, confirming the common definition of a bear market, with the benchmark registering its largest weekly percentage drop last week. since March 2020.
Last week, the ASX 200 also had its worst week of trading since the initial COVID-19 selloff. It has fallen about 15% since its August high, placing it firmly in correction territory.
“Markets continue to be volatile,” said King Lip, chief strategist at Baker Avenue Asset Management in San Francisco.
“Granted, we’re not out of the woods yet…the concerns are still there.”
Overnight, the S&P 500 lost 0.1%, to close at 3,760 points. The Nasdaq Composite fell 0.2%, to 11,053, while the Dow Jones index fell 0.2%, to 30,483.
The three major US indices spent much of their day in positive territory, before slipping into the final hour of trading.
In company news, shares of Moderna rose 4.7%, after the company said an updated version of its COVID-19 vaccine generated a strong immune response against the subvariants. fast-spreading Omicron.
Recession fears drive oil prices down
Oil prices fell as investors feared aggressive rate hikes by the U.S. Fed and other central banks could push the global economy into recession, dampening demand for fuel.
Brent crude futures plunged 4.3% to $109.74 a barrel, its lowest level in a month.
Spot gold rose 0.3% to US$1,837.53 an ounce.
“Gold edged higher as safe-haven buying rose amid recession fears,” ANZ economists Daniel Hynes and Brian Martin wrote in a research note.
ABC/Reuters
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