The Australian stock market is expected to open higher despite another overnight decline on Wall Street, as investors weighed the potential for a US recession.
Most important points:
- Retail sales in China fell 11.1 percent in April
- The Australian dollar is trading near its two-year low
- JP Morgan says markets are pricing in ‘too much’ recession risk
Investor sentiment was impacted by China’s disappointing economic data, which showed that: extension of the COVID-19 lockdowns took a heavy toll on consumption, industrial production and employment in April, fueling fears of a global slowdown.
ASX futures rose 0.3 percent to 7,100 points, Tuesday at 8:45 a.m. AEST.
The Australian dollar rose slightly to 69.7 cents.
“Chinese economic activity may recover in May as the number of new infections has declined recently and the number of medium-to-high-risk areas has declined,” said Joseph Capurso, Commonwealth Bank’s head of international economics.
Gold rose 0.7 percent to $1,824 an ounce.
Oil prices rose as the European Union moved closer to an import ban on Russian crude and traders saw signs that the COVID-19 pandemic was easing in the worst-hit areas of China, suggesting a significant recovery in demand in China. the make is.
Brent oil futures were up 2.4 percent to $114 a barrel.
Bitcoin fell 5 percent to $29,726 dollars.
Profit taking after a rebound
“When you see big ‘up’ days, I’m not surprised to see some profit-taking the next day,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, who referred to last Friday’s recovery on Wall Street.
“We’re just seeing a reaction to the recent strength. There are several factors driving the market, but overall none of them are very positive.”
The S&P 500 lost 0.4 percent, closing at 4,009 (local time) Monday. All in all, the benchmark index has recorded a six-week loss streak, the longest since 2011.
The Nasdaq Composite fell 1.2 percent to 11,664 points. The technology-driven index is in a bear market and is down about 30 percent since its record high in November.
The Dow Jones index rose 0.1 percent to 32,236 points. But it has collapsed for seven weeks in a row, the longest losing streak since 2001.
Shares in US mega-cap growth stocks fell, weighing heavily on the S&P and Nasdaq. These include Amazon and Google owner Alphabet, which fell 2 and 1.4 percent respectively.
Twitter shares plunged an additional 8 percent after Elon Musk said a deal to buy the social media company at a price lower than its $44 billion previously agreed “wasn’t out of the question,” according to a Bloomberg report.
Tesla, the leader of Musk, fell 5.9 percent.
Markets price in ‘too much’ recession risk
Investors feared that aggressive rate hikes by the US Federal Reserve to combat decades-long inflation could send the economy into recession.
The war in Ukraine, supply chain disruptions and China’s pandemic-related lockdowns also exacerbated economic problems.
Traders now estimate a near 86 percent chance of a 50 basis point (0.5 percentage point) increase by the Fed in June.
A major concern is that, by pushing US inflation to its highest level in about 40 years, the Fed may need to raise interest rates more aggressively, to the extent that it could trigger an economic downturn.
But according to Marko Kolanovic, one of JP Morgan’s lead strategists, the markets may be pricing in “too much recession risk,” which has maintained a “pro-risk” mindset.
In a letter to customers, he wrote that the US and European stock markets are betting on a 70 percent chance of a “short-term recession”.
He said this was higher than estimates from the investment-grade bond markets (50 percent), the high-yield bond markets (30 percent) and the interest rate markets (10 to 20 percent).
“Stocks are likely to recover if a recession doesn’t come through, given the already significant multiple de-rating, reduced positioning and gloomy sentiment,” he added.
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