ASX to slip, Wall St reverses on hawkish rate views

Mester earlier told Yahoo! Finance that raising raising rates by a half point at the next two meetings of the US central bank “makes perfect sense” as officials battle surging inflation. That echoed New York Fed president John Williams, who also noted that the Fed would be shrinking its balance sheet at the same time.

“That means that we are actually removing accommodation pretty quickly through that channel. And that gives us a little space to move in something like a 50 basis-point increment at the next couple of meetings,” he told reporters in Eltville, Germany.

“As we watch the data over the remainder of the year, we’re going to have to adjust course and take the policy actions that are appropriate,” added Williams, a member of Powell’s leadership team.

Mohamed El-Erian said in a tweet: “I worry that all the Fedspeak since last Wednesday’s Fed policy meeting has done more to confuse markets than reassure them.”

Today’s agenda

Local: Westpac-MI consumer confidence May at 10.30am AEST

Overseas data: China April CPI, PPI at 11.30am AEST; US April CPI at 10.30pm AEST

Market highlights

ASX futures down 22 points or 0.3 per cent to 7000 near 3.10am AEST

  • AUD -0.4% to 69.22 US cents
  • Bitcoin on bitstamp.net -1.2% to $US31,279.63 at 3.15am AEST
  • On Wall St: Dow -0.5% S&P 500 -0.4% Nasdaq +0.4%
  • In New York: BHP -0.5% Rio -0.8% Atlassian -2.5%
  • Tesla +0.2% Apple +1.1% Amazon -1% Alphabet +1.5%
  • In Europe: Stoxx 50 +0.8% FTSE +0.4% CAC +0.5% DAX +1.2%
  • Spot gold -0.5% to $US1844.20 an ounce at 1.09pm New York time
  • Brent crude -3.4% to $US102.30 a barrel
  • US oil -3.4% to $US99.59 a barrel
  • Iron ore -2.5% to $US128.10 a tonne
  • 2-year yield: US 2.62% Australia 2.66%
  • 5-year yield: US 2.90% Australia 3.21%
  • 10-year yield: US 2.96% Australia 3.56% Germany 1%
  • US prices as of 1.11pm in New York

From today’s Financial Review

Employers warn Labor’s 5pc pay rise will crush business: Employers and economists are warning Labor leader Anthony Albanese’s advocacy for pay rises greater than 5 per cent will crush businesses and fuel inflation.

The AFR View: Anthony Albanese’s jobs summit must strike a new wages bargain: The Labor leader should send the wage issues to the jobs summit he plans to hold if he wins the May 21 election, in line with his vow to govern like Bob Hawke and reform like Paul Keating.

AGL CEO queries ‘end game’ of Cannon-Brookes: CEO Graeme Hunt says AGL is “asking questions” to ensure shareholder interests are protected as he queries the tech mogul’s motives for seeking to block the demerger.

United States

Tesla has halted most of its production at its Shanghai plant due to problems securing parts for its electric vehicles, according to an internal memo seen by Reuters, the latest in a series of difficulties for the factory.

The automaker’s sales in China had already slumped by 98 per cent in April from a month earlier, data released by the China Passenger Car Association (CPCA) showed on Tuesday, underscoring the hit from China’s hard COVID-19 lockdowns.

Pfizer will pay $US11.6 billion to buy migraine pill maker Biohaven Pharmaceutical, marking the biggest deal by the cash-rich drugmaker since 2016 to beef up its portfolio ahead of patent losses for some cancer drugs.

Peloton is “thinly capitalised”, the fitness-equipment maker’s chief executive warned, as unsold inventory coupled with mounting costs pushed the once pandemic darling into a big quarterly loss.

The company also forecast weak sales as it wrestles with waning demand for its stationary bikes and tread machines amid concerns of subscription cancellations due to price hikes.

Prologis, a warehouse real estate company, said it had offered to buy its smaller peer Duke Realty in an all-stock deal valued at $US23.7 billion, as it looks to benefit from the booming demand for industrial space.

US April CPI

TD Securities: “We look for core prices to have regained momentum on a m/m basis in April, posting a solid 0.5 per cent increase after registering a 0.3 per cent rise in March. In terms of the headline, we expect inflation to advance a firm 0.3 per cent m/m. Our m/m projections imply confirmation that inflation peaked on a y/y basis in March. We look for annual inflation to ease to 8.2 per cent/6.1 per cent for headline/core prices, down from 8.5 per cent/6.5 per cent last month.”

Amherst Pierpont’s Stephen Stanley: “A 0.4 per cent monthly increase in the core CPI would probably nudge the year-over-year advance down by close to half a percentage point to 6.0 per cent (in April 2021, the core CPI surged by 0.9 per cent). Unfortunately, used vehicle prices are likely to stabilise soon, and there is not much evidence of cooling elsewhere (aside, perhaps, from new vehicles, where supply may pick up later this year).

“Travel costs in particular were likely firm in April and may remain so through the summer, as households make up for lost time on the summer vacation front. Thus, I have penciled in 0.4 per cent monthly rises for the core CPI for the next few months (including April). The year-over-year figure could by over a full percentage from March to June, but the monthly run rate may remain in the 4 per cent to 5 per cent range.”

Europe

The pan-European STOXX 600 index rose 0.7 per cent, with almost all sectors in positive territory.

Data showed German investor sentiment rose slightly in May on expectations the economic situation in Europe’s largest economy will deteriorate less markedly than previously predicted.

Swedish Match surged 24.9 per cent after Philip Morris International said it was in talks to buy the smaller rival.

Agriculture and pharmaceuticals company Bayer jumped 5.4 per cent after better-than-expected quarterly adjusted earnings on strong gains at its seeds and pesticides business.

Asia

Chinese tech stocks fell as Hong Kong markets reopened after a holiday to face renewed growth worries and persistent regulatory risks, sparking another bout of selling.

The Hang Seng Tech Index tumbled 3.2 per cent on Tuesday, extending its slide into a fifth day. JD.com and Alibaba were among the biggest drags. Key equities gauges across the region all slumped, with an index of Chinese firms in the city sliding more than 2 per cent.

The Hang Seng Index fell 1.8 per cent. Hong Kong’s market was closed on Monday. The CSI 300 Index, a benchmark for mainland stocks, closed up 1.1 per cent.

Currencies

Crypto ETFs no ‘watershed’ for market access: critics: Cboe Australia will begin on Thursday hosting the first movers in the controversial new category of sharemarket-listed funds tracking the prices of large cap crypto assets bitcoin and ether

Commodities

Chinese iron ore futures dropped up to 7 per cent on Tuesday to touch their lowest in nearly two months, fuelled by concerns of higher interest rates and still-stagnant demand at home.

Meanwhile, thin profit margins at steel producers, and overall steel output controls have curbed production increases and dented demand for steelmaking ingredients, GF Futures analysts wrote in a note.

The most-active iron ore futures on China’s Dalian Commodity Exchange, for September delivery, plunged as much as 7 per cent to 756 yuan ($US112.71) per tonne, the lowest since March 16.

They ended 4.1 per cent lower at 779 yuan a tonne, extending losses to a third day.

On the Singapore exchange, the most-traded June iron ore contract fell 3.1 per cent to $US123.45 a tonne.

With Reuters, Bloomberg

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