Stocks remain heavy as US data weigh
Yesterday in New York should have been the usual bounce-back day for stocks.
Instead, while there was some attempt, the market settled back toward the previous day’s lows. This is a somewhat precarious situation and encourages our view that the ‘day and technical traders’ were caught enthusiastically long.
While the real money funds were very happy to take advantage of the liquidity provided and continue to sell down their portfolios.
US data was worrying in that existing home sales fell another 2.4%, and New Jobless Claims leapt to 218,000. This remains a low and good number, but it did exhibit a bit of a break to the upside which could again indicate the tide is most definitely turning down for the US economy.
The European Central Bank (ECB) wants to move toward tightening, or so the ’talk’ goes, but it is just way too late for the ECB who was focused on being popular and is just now starting to chase the inflation wave that has already inundated the region.
This will provide a moment of support for the Euro, but a bit of a ‘snowflake in summer’ rally. ECB rates will fall further behind US levels, even if the ECB starts to raise. Additionally, there is that small thing of war on the doorstep and energy supply concerns recession likelihood.
Australia is likely to experience a change of government over the weekend. Most market participants are indeed conservative-leaning, and rally do not want to consider an ALP victory, but this remains my forecast as it has for several months now.
At the previous election, against popular belief I forecast a Morrison victory. So this is not a personal view but how I see things turning out only.
Anthony Albanese has stumbled several times now. His victory margin may well be reduced, but he probably will still get across the line and win the Lodge.
Markets could be weak on the Friday close and first thing Monday. Particularly as Australian traders have tried not to notice as the sky falls in on US equities. This situation is unlikely to last.
I expect the Australian market to gather speed to the downside over the coming weeks and months as it increasingly dawns on people that Australia does indeed have a recession risk as high as 30%.
That’s a real problem.
Especially as the world’s least capable central bank will remain in control of our interest rates, and likely hike a year too late and far too aggressively. Just because the Federal Reserve is doing it.
Which is all the RBA has done for several years now. Mimic the Fed, with no understanding of our domestic and regional economics.
I call on the incoming government, whoever they are, to follow the suggestion of the OECD and yours truly to urgently review the RBA board and charter. Due to atrocious performance and disservice to the Australian people.
It is of the utmost importance for the well-being of the Australian economy and people that we have a competent central bank at the wheel of the Australian economy.
This is not the case. This must change and such urgent dramatic change as is required can only come with the immediate replacement of the Governor of the RBA with an appointment from outside the bank.
An entirely new board could then be appointed to conduct the revolution and bringing into the modern age that our central bank so badly requires.
Australia needs a Reserve Bank. Not the current ‘Reverse’ Bank of Australia.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
