Australia’s stock market has risen to its highest level since early June, even as oil prices plummeted overnight as the Bank of England announced its biggest rate hike in 27 years and warned of a long recession for the UK.
The ASX 200 closed 0.6 percent higher at 7,016 points on Friday.
The benchmark index is also up 1 percent over the past five days, posting three consecutive weeks of gains.
As of 4:20pm AEST, the Australian dollar was trading at 69.6 US cents after gaining 0.2 percent overnight. This was mainly due to a weaker US dollar.
It came after a lackluster session on Wall Street, which saw the Dow Jones Index fall 0.3 percent to 32,727 points, the S&P 500 fell 0.1 percent to 4,152 and the Nasdaq Composite rose 0.4 percent to 12,721 .
“The market is looking for direction after a strong recovery that has assuaged the deep pessimism that had pervaded markets,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
“Many signs point to it [US] Inflation has peaked and the question now is how fast it will fall or if stickier components will keep it higher than the Fed [Federal Reserve] is comfortable with.”
Oil traders also worried about recession fears and the possibility that it could lower energy demand, as crude prices fell to their lowest levels since Russia’s invasion of Ukraine in February.
Brent crude fell 3.6 percent to $93.34 a barrel, while US West Texas crude fell 2.3 percent to $88.54.
Spot gold rose 1.5 percent to a monthly high of $1,792 an ounce.
Huge payment dips in bitcoin bets
Lithium and electric battery stocks were the top performers today, including Novonix (+13.7%), Liontown Resources (+6.7%), Core Lithium (+6.2%), along with gold miners Rameilius Resources (+6, 7 percent) and Silver Lake Resources (+6.6 pcs.).
On the other hand, the biggest losses were in local technology stocks Megaport (-7.1 percent), Block (-6.2 percent), Hub24 (-3.1 percent) and companies in the energy sector such as New Hope Corporation (-5, 4 percent) and Whitehaven recorded coal (-3.5 percent), Viva Energy (-3.8 percent) and Beach Energy (-2.8 percent).
Block said it has slowed hiring and will cut its 2022 investment target by $250 million after a plunge in bitcoin prices dragged the digital payments company into a loss in the second quarter.
Regulatory hurdles for cryptocurrencies, rising interest rates and the Ukraine crisis have sapped investor appetites for riskier assets, dragging bitcoin prices down about 36 percent over the quarter.
As a result, Block’s Bitcoin gross profit, or what the company earns from the spread when buying and selling the cryptocurrency, fell 24 percent to $41 million.
The company facilitates bitcoin trading through its online payment service Cash App.
Block’s recently acquired buy-now pay-later unit, Afterpay, contributed $150 million to gross profit in the quarter, split between the company’s Square and Cash App segments.
Net loss attributable to common shareholders was 36 cents per share, down from a gain of 40 cents last year.
recession for Britain
The British central bank hiked interest rates by 0.5 percentage point on Thursday evening (AEST), the largest hike since 1995.
This comes despite the BoE warning that a long recession was on the way as it rushed to smother a surge in inflation, which is now expected to peak at 13.3 percent in October – versus its previous forecast of 11 Percent.
This would be the sharpest rise in consumer prices since 1980, mainly due to the rise in energy prices following Russia’s invasion of Ukraine.
Against this backdrop, the BoE’s Monetary Policy Committee voted 8-1 to raise the UK benchmark interest rate to 1.75% (from 1.25%), the highest level since late 2008.
It also warned that the UK was headed for a recession, with output falling 2.1 percent peak-to-valley, similar to a slump in the 1990s but far less than the slump of COVID-19 and that through 2008 /09 downturn caused global financial crisis.
The UK economy would start contracting in the last quarter of 2022 and contract throughout 2023, making it the longest recession since the global financial crisis.
That would mean that households would see their disposable income fall for two straight years, the biggest squeeze since records began in 1964.
UK consumer price inflation was already at a 40-year high of 9.4 percent in June, already more than four times the BoE’s target of 2 percent.
This has sparked industrial action and is putting pressure on Boris Johnson’s successor as Britain’s next prime minister to provide further support.
“Given that the BoE has hiked rates six times since December and still think inflation will keep rising, it’s almost as if they’re admitting that their monetary tightening can’t control CPI [consumer price index]said David Madden, market analyst at Equiti Capital.
“It begs the question, why rise at all when you think factors beyond your control — food prices, energy costs and supply chain issues — are the root causes of rising inflation.”
Oil falls to pre-war levels in Ukraine
The drop in oil prices to their lowest level since February will reassure big consumer nations like Australia and the United States, which may expect gasoline prices to fall further.
Oil prices rose to well over $120 a barrel earlier this year before falling back to $93 overnight.
A sudden rebound in demand from the darkest days of the COVID-19 pandemic coincided with supply disruptions stemming from sanctions against major producer Russia over its invasion of Ukraine.
Demand prospects remain clouded by mounting worries of an economic slowdown in the United States and Europe, debt problems in emerging markets and a strict zero-COVID-19 policy in China, the world’s largest oil importer.
“A break below $90 is now a very real possibility, which is quite remarkable considering how stretched the market remains and how little room there is to mitigate it,” said Craig Erlam, senior market analyst at Oanda in London.
“But the talk of a recession is getting louder and if it does happen, it will likely correct some of the imbalance.”
An OPEC+ agreement Wednesday to raise its September production target by 100,000 barrels a day, just 0.1 percent of global demand, was seen by some analysts as bearish for the market.
ABC/Reuters