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Australian shares are set to finally rebound, after plummeting for seven straight trading days into correction territory on high inflation and recession worries.
Key points:
- The ASX 200 is in correction territory, having dropped by almost 16pc from its record high
- Bitcoin plunged as low as $US17,593 over the weekend
- Lower iron ore prices and the risk of a global slowdown have weakened the Australian dollar
ASX futures were up 0.7 per cent, to 6,388 points, by 8:40am AEST on Tuesday.
Local investors will be paying close attention to the words of Reserve Bank Governor Philip Lowe to see whether he offers any hints on the size of the next rate hike (tipped for July 5).
Dr Lowe will deliver a speech at 10am AEST, entitled Economic Outlook and Monetary Policy.
The Australian dollar recovered slightly, to 69.6 US cents, but remains near its weakest level since July 2020. It is partly being weighed down by falling iron ore prices, on worries about the impact of China’s COVID-zero policy.
China is the biggest buyer of Australian iron ore, and the price of the steel-making ingredient has plunged 8 per cent to around $US112 a tonne, according to ANZ data.
“Further falls in iron ore prices can add to downside pressure on the Australian dollar today,” said Commonwealth Bank currency strategist Carol Kong.
Ms Kong also said the local currency can slip further because of the “coming sharp slowdown in the world economy”, and has forecast it will trade within a range of 60-70 US cents for most of the next 12 months.
Meanwhile, the cryptocurrency industry was on edge as bitcoin held just above $US20,000 and investors feared that problems at major crypto players could unleash a wider market shake-out.
Oil prices swung higher in volatile trading, with Brent crude futures rising 0.9 per cent, to $US114.13 a barrel.
Spot gold was little changed in holiday-thinned trading, at $US1,837.46 per ounce.
More volatility ahead
Wall Street was closed for the Juneteenth public holiday, while European markets recovered some of their losses from the recent sell-off.
The pan-European STOXX 600 jumped 1 per cent overnight, with battered banking, travel and energy stocks leading the gains.
That index has shed almost 17 per cent this year so far, as a cocktail of worries from soaring inflation to China’s slowing economy and a cost-of-living crisis in the UK dampen investors’ appetite for risk.
Overnight, European Central Bank President Christine Lagarde reaffirmed plans to raise interest rates, twice, in the next few months, while fighting widening spreads in the borrowing costs of different euro zone countries.
“We’ll continue to see some volatility because inflation, in our view, is not going to start to come down until the end of this year,” said Willem Sels, global chief investment officer at HSBC.
Crypto industry ‘braced for more to come’
Bitcoin — the world’s biggest cryptocurrency — dropped on Saturday to as low as $US17,593, falling below the key $US20,000 level for the first time since December 2020.
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So far this year, the volatile cryptocurrency has lost 55 per cent of its value — and 35 per cent this month alone in the cryptocurrency sector’s latest meltdown.
Bitcoin’s fall follows problems at several major crypto firms. Further declines, market players said, could have a knock-on effect as other crypto investors are forced to sell their holdings to meet margin calls and cover their losses.
Crypto hedge fund Three Arrows Capital is exploring options, including the sale of assets and a bailout by another firm, its founders told the Wall Street Journal in a story published on Friday.
It was also the same day that Asia-focused crypto lender Babel Finance said it would suspend withdrawals.
“We’ve likely seen the worst of things, in terms of any singular entity suffering, but most in the industry are braced for more to come,” said head of financial strategy at fund management firm Solrise Finance Joseph Edwards.
‘Domino effect of bankruptcies’
US-based lender Celsius Network this month said it would suspend customer withdrawals.
In a blog on Monday, Celsius said it would continue working with regulators and officials, but that it would pause its customer Q&A sessions.
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“There is a lot of credit being withdrawn from the system and, if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books, which means that the entire amount of credit available in the crypto ecosystem is much reduced,” said chief risk office for Japan at crypto liquidity provider B2C2 Adam Farthing.
Smaller tokens, which usually move in tandem with bitcoin, were also hurt.
The second-largest cryptocurrency, ether, was at $US1,129, having dipped below its own symbolic level of $US1,000 over the weekend.
Recent falls in crypto markets have coincided with a sell-off on stock markets, as Wall Street last week suffered its biggest weekly percentage decline in two years on fears of rising interest rates and the growing likelihood of a recession in the US.
Bitcoin’s moves have tended to follow a similar pattern to other risk assets, such as tech stocks.
The overall crypto market capitalisation is roughly $US900 billion, according to price site Coinmarketcap, down from a peak of $2.9 trillion in November 2021.
A fall in stablecoins — a type of crypto designed to hold a steady value — is also suggesting investors are pulling money from the sector as a whole.
ABC/Reuters
Posted , updated
Read More: ASX set to recover, bitcoin holds near $US20,000 as investors fear ‘domino effect’
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