Local stocks could start the day higher, despite heavy losses in European markets overnight and a much-anticipated interest rate hike by the Reserve Bank of Australia (RBA).
ASX futures were up 0.1 percent at 6,840 points at 6:45am AEST while Wall Street was closed for a public holiday.
The Australian dollar fell to 67.97 US cents, around a seven-week low against the dollar.
Many economists are predicting that the RBA will raise its cash rate target by 0.5 percentage point. This would take the new cash rate to 2.35 percent, its highest level since December 2014.
With inflation rising at its fastest pace in roughly 30 years and wages struggling to keep up, the RBA has very little choice but to raise rates. It’s also under pressure to slow the economy without causing businesses and households too much pain.
A person with a $500,000 adjustable-rate mortgage and 25 years left to pay it off will see their monthly payment increase by about $140, according to comparison website RateCity.
However, when one considers the impact of five rate increases, including today’s, that borrower would have to shell out an additional $600 per month.
European shares fall after closure of Russian gas pipeline
European stock indices fell overnight, while the euro fell below 99 cents for the first time in 20 years after Russia said its main gas pipeline to Europe would remain closed indefinitely.
Gas deliveries were due to resume on Saturday, however Russia removed that deadline on Friday and did not give a new deadline for reopening. The news stoked fears of a recession in Europe, with businesses and households hit by soaring energy prices.
Gas prices in Europe rose as much as 30 percent when the market opened.
Germany on Sunday announced around $65 billion of support to help shield Germans from rising costs.
Finland and Sweden also announced plans to offer liquidity guarantees to power companies.
And Finland’s Economic Affairs Minister Mika Lintilä warned of the possibility of a “sort of Lehman Brothers” effect in the energy industry, referring to the 2008 collapse of what was then the fourth-largest US investment bank. .
Nomura economist George Buckley said it was unclear how much support packages from European governments would mitigate the energy crisis.
“The impact of what’s happening with energy is absolutely huge,” said Mr. Buckley, “so I think the biggest risk is that it’s just not possible: like COVID, you can do a lot to help but you can’t offset it. “
Europe’s STOXX 600 was down 0.8 percent, having recovered slightly after approaching a seven-week low earlier in the session.
London’s FTSE 100 rose 0.1 percent. However, Germany’s DAX was down 2.3 percent on the day.
The European Central Bank (ECB) is due to meet later this week and is expected to deliver its second major rate hike in a bid to combat inflation, which is more than quadrupling its 2 percent target.
“Soaring energy prices, the risk of gas shortages and the fiscal and regulatory response will shape the euro zone’s GDP and inflation outlook far more than anything the ECB can do with rates,” he said. Berenberg’s chief economist, Holger Schmieding, in a note to clients. .
In the UK, Liz Truss has been named Britain’s next prime minister, taking office at a time when the country is facing a cost-of-living crisis, industrial unrest and a recession.
In her victory speech, Mrs. Truss said she planned to cut taxes and deal with energy bills.
Oil prices soar due to supply cut
In oil markets, Brent crude jumped 2.4% to $95.23 a barrel, extending gains as OPEC+ producers agreed to a small cut in oil production to boost prices.
The reduction of 100,000 barrels per day (bpd) by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) represents only 0.1% of global demand.
That group also agreed that they could meet at any time to adjust the production before the next meeting scheduled for October 5.
“It’s the symbolic message that the group wants to send to the markets, more than anything,” said Oanda analyst Craig Erlam, adding that the 100,000 bpd raised last month by OPEC+ was not seen as a big deal.
“What we have probably seen in the markets was pricing in most of the worst cases,” he added.
Russian Deputy Prime Minister Alexander Novak said expectations of weaker global economic growth were behind the decision by Moscow and its OPEC allies to cut oil production.
“The big picture is that OPEC+ is producing well below its production target and this seems unlikely to change as Angola and Nigeria, in particular, seem unable to return to pre-pandemic production levels,” said the chief commodity economist at Capital Economics. Caroline Bain said.