Flat start as investors await RBA rate decision – The Market Herald

Australian stocks looked set to open with little change ahead of today’s Reserve Bank interest rate announcement as weak US stock futures offset gains in European equities during the US holiday July 4th last night.

ASX Futures Contracts increased slightly by one point or 0.02%. The S&P/ASX 200 jumped 73 points or 1.11% yesterday to its first gain in four sessions.

Energy stocks led in Europe as oil and gas rallied. Iron ore extended recent falls. Copper fell to a fresh 17-month low. The dollar climbed towards 69 US cents.

Europe

Solid gains by oil and gas producers helped European stocks rebound after a losing week despite reports of collapsing investor sentiment. Trading volumes were limited by the US market holiday.

The pan-European Stoxx 600 index rose 0.54%, led by a 4.1% increase in the energy sector. Britain’s FTSE 100 index rose 0.89%. The French CAC 40 index gained 0.4%. The German DAX index lost 0.31%.

oil and gas Producers rose after the OPEC+ oil cartel missed a production target and Norwegian gas workers threatened to strike. BP advanced 4.41%. Shell veered to 3.87%. French TotalEnergies added 4.55%.

Health care providers and miners have also increased. The tech sector fell about 1% as European bond yields climbed. Real estate and automakers fell.

A survey showed investor sentiment crashed to recession level this month. The Eurozone Sentix index fell to -26.4 from -15.8 in June. The reading was the weakest since May 2020, the early days of the pandemic.

“Situation scores like the current one justify the expectation that a recession is inevitable,” Sentix chief executive Manfred Huebner said.

The Stoxx 600 has fallen about 16% this year as investors worried about the threat to growth from higher rates. The European Central Bank is expected to raise rates this month.

US stock futures remained underwater this morning. S&P 500 Futures Contracts were down 15 points or 0.39 percent. Dow futures fell 95 points or 0.31%. Nasdaq futures fell 54 points or 0.47%.

US stocks rallied over the long weekend. The S&P 500 advanced 1.06% on Friday, reducing its loss for the week to 2.2%.

Australian Perspectives

A confusing outlook for the day ahead, with US stock futures weak and doubts over this afternoon’s spot rate announcement likely to cap buying interest. The S&P/ASX 200 enjoyed a welcome upside yesterday and may need more than mixed leads from Europe and the commodity markets to extend its gains.

Weakness in iron ore and a rally in bond yields loom as potential headwinds. The energy sector should provide momentum.

The reserve bank meets this morning and is expected to raise the target rate by 50 basis points to 1.35% when the new rate is announced at 2:30 p.m. AEST.

A smaller 25 basis point increase is possible, but unlikely in the wake of strong economic data since last month’s rise. The central bank will likely need to see signs of slowing growth before it eases off. A handful of economists have suggested that increases of 65 or 75 basis points would be more appropriate to help reduce inflation.

Also on the economic calendar today: weekly data on consumer confidence, the AIG construction index and monthly retail sales.

The dollar climbed 0.75% to 68.63 US cents.

Goods

oil and gas prices rallied as unrest in Libya and Ecuador, an OPEC production shortfall and a potential strike in Norway highlighted supply issues.

The Libyan authorities have declared force majeure. Ecuador’s state-owned oil company said civil unrest had cost the country about two million barrels of production. Norway, Western Europe’s biggest oil producer, is likely to go on strike this week. Meanwhile, a Reuters survey showed OPEC producers missed their June production target.

“This backdrop of growing supply disruptions is colliding with a potential shortage of spare production capacity among Middle Eastern oil producers,” Stephen Brennock of oil broker PVM told Reuters. “And without new oil production hitting the markets soon, prices will be forced higher.”

Crude Brent settled down US$1.87 or 1.7% to US$113.50 a barrel. Dutch gas futures trading gained more than 10% at one point. British gas jumped 20%.

Iron-ore continued to fall in China amid reports of production cuts at loss-making steel mills. Factories curbed production as steel inventories piled up, reflecting weak demand as fears of a global recession loom.

“We expect iron ore futures to trade lower this week given these overwhelming negative price factors,” said Atilla Widnell, managing director of Navigate Commodities in Singapore.

“Given that Chinese blast furnaces will likely continue to exercise better production discipline, we expect iron ore inventories at ports to extend stockpiling this week,” Widnell added.

The spot price of ore landed at Tianjin fell US$5.29 or 4.6% to US$109.94 per tonne. The most traded ore contract on the Dalian Commodity Exchange fell 5.8% to US$107.49.

BHPShares traded in the UK jumped 0.9%. Rio Tinto increased by 0.01%.

Copper faded to a fresh 17-month low, closing below the psychologically important level of US$8,000 a tonne. On the London Metal Exchange, benchmark copper fell 0.5% to US$7,998.50 a tonne.

Aluminum rose 1%, nickel 3.1%, lead 1.2% and zinc 3.2%. Tin tempered 0.2%.

Gold reduced some of yesterday’s gains. The yellow metal was this morning ahead of US$6.80 or 0.38% at US$1,808.30 an ounce in US e-commerce. The price was US$1,812.50 when the ASX closed last night.

Comments are closed.