The US dollar rose, oil fell $US3 a barrel to around $US131.30, gold plunged sharply, losing $US23 an ounce to end in new York at $US871 an ounce and other commodities were mixed to lower, with the exception of wheat and corn, which were firmer.
Wall Street closed flat to lower for a second day, European stocks were lower, led by banks and airlines. And the euro fell against the greenback.
The big story was the speech by US Federal Reserve chairman, Ben Bernanke and comments about the US dollar by US Treasury Secretary, Hank Paulson (see below).
There’s now a very firm feeling that the push to lower interest rates in the uS, Europe and Britain in response to the credit crunch and slowing economic growth is over and that the next move will be up for major central banks.
That will leave New Zealand and Canada as possibly the only important economies were a rate cut is either in prospect, or about to happen.
So, we in Australia won’t be alone. The next move in US rates will be up, but almost certainly not this year, not unless there’s a surge in inflation.
That will impact the value of the Australian dollar, which ended around 94.50 overnight. a fall in the value of the Aussie could take some of the heat of the stockmarket and companies like Fosters and a host of others in the industrial, services and mining sectors.
But keep an eye on China: its looking nervous, if yesterday’s performance is any guide.
China’s sharemarkets hit a 14-month low, other Asian markets were weak: Australia and South Korea played catch up and fell heavily and oil prices edged back over $US135 a barrel.
China’s plunge came after the central bank told lenders to set aside a record 17.5% of assets as reserves to try and further restrict bank lending.
That saw China’s banks fall and the main market indices fell. That saw the CSI 300 Index, which tracks the Yuan price of A listed shares listed on the two exchanges in China fall 7.7%.
There was an element of catch up as China had been closed Monday for a holiday but the fall to a level last seen in April last year was a warning that sentiment on the mainland isn’t strong.
Chinese inflation figures are due out Thursday and could show a slight easing in the annual rate of price pressures in May. If that happens that could put some strength back into the market.
Overall, Asian markets fell to their lowest level in two months yesterday.
The MSCI Asia Pacific Index shed around 2%, the Nikkei lost just over 1% and Australia was off 2.8%.Hong Kong lost around 4.2%, Seoul 2% and Singapore almost 1%.
The Index shed 2% on Monday in a first reaction to Friday night’s big fall on Wall Street and the surge in oil to over $US138 a barrel.
The fall in Australia was driven by weaker bank stocks reacting to the advanced news of Lehman Bros big loss, write-downs and $US6 billion capital injection.
The 2.8% fall was the biggest one day fall in almost three months and another reminder that despite what the optimists might think, the impact of the credit crunch and the sluggish US and local economies haven’t gone away.
