Australian shares are set to open lower, ahead of the Reserve Bank’s widely-expected interest rate hike this afternoon which will lead to another sharp rise in mortgage repayments.
- The ASX 200 has dropped 6.1pc since the year began
- On Wall Street, the S&P 500 has lost 14pc of its value since January 1
- The RBA has lifted interest rates by 1.25pc in the past three months
ASX futures were down 0.3 per cent, to 6,880 points, by 8:25am AEST.
The Australian dollar was trading at a six-week high of 70.2 US cents, following a 0.6 per cent rise overnight.
According to many Australian economists, the most likely outcome of today’s RBA announcement will see the central bank lift it cash rate target by a larger-than-usual 0.5 percentage points.
This would take the new rate to 1.85 per cent, a big jump since the record low of 0.1 per cent in May. It would also be the highest cash rate since April 2016.
The central bank is expected to keep lifting rates aggressively over the coming months, as it desperately tries to bring inflation down from its 21-year high.
Effectively, it will do so by lifting rates to a level that makes consumers feel poorer so they visit the shops less, and spend more on their loan repayments.
House prices are also feeling the crunch. Since interest rates begin to rise sharply in May, property values have dropped by 2 per cent — the fastest drop since the onset of the global financial crisis in 2008, according to figures from CoreLogic.
‘A lot of questions’ about the economic downturn
The local share market is also likely to follow a weak lead from Wall Street, which we see-sawed on Monday, local time, as crude oil prices plunged and the looming possibility of US recession curbed the appetite for taking risks.
All three major US indexes were modestly lower on the first day of August, coming on the heels of the S&P 500’s and the Nasdaq’s biggest monthly percentage gains since 2020.
“There are still a lot of questions about whether we are really out of the woods, economically, and we probably aren’t,” said Tom Martin, a senior portfolio manager at GLOBALT Investments in Atlanta, Georgia.
“We’re not even close on the [economic] effects of the [Federal Reserve] raising interest rates.”
The S&P 500 declined 0.3 per cent, to end the session at 4,119 points.
The Nasdaq slipped 0.2 per cent, to 12,369, while the Dow Jones index fell 0.1 per cent, to 32,799.
Energy stocks pulled European markets into the red as fears of weakening demand and economic contraction on the heels of disappointing data from the euro zone and China.
The pan-European STOXX 600 index lost 0.2 per cent overnight.
Crude oil prices headed lower as traders braced for this week’s meeting of OPEC and other oil producers concerning world crude supply.
Brent crude fell 3.9 per cent, to $US100.03 per barrel.
Gold prices edged higher after the US dollar softened, as investors looked to economic data for clues regarding the pace of interest rate hikes from the US Federal Reserve.
Spot gold added 0.2 per cent, to $US1,768.73 an ounce.