- The S&P/ASX 200 is down 1.4% on Monday morning, trailing the US losses on Friday.
- Markets remain sensitive to inflation and interest rate policy.
- The international housing rental market remains stubbornly high and is the last piece of the inflation puzzle to overcome before interest rate policy can be eased.
Friday’s US sell-off is dragging the S&P/ASX 200 lower on Monday, with technology stocks bearing the brunt. A higher-than-anticipated inflation reading on Thursday weighs on the macroeconomic outlook, with the market’s pricing in further interest rate rises.
Interest rate-sensitive growth and technology stocks continue to be loss leaders. ETFS Morningstar Global Technology ETF ASX:TECH (TECH) is down 33% YTD.
Pressured by higher rates on credit lines and an anticipated retracement in retail sales, Block Inc’s Afterpay continues its struggles this year on a reduced outlook for the uptake of its services. ASX:SQ2 (SQ2) is down almost 7% in Monday trading.
Concerns over the Chinese banking sector are doing little to assuage investors’ fears about iron ore, with the price for the steel input hovering around 24-month lows of 95 USD/MT. Fortescue Metals Group ASX:GMF (FMG) and BHP Billiton ASX:BHP (BHP) are off 1.6% and 2.9%, respectively, at the Monday open.
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A bright spot for the markets is the Lithium sector. Lithium Carbonate is stubbornly clinging to multi-decade highs with no sign of abating.
Lithium Carbonate landed in China attracts over 520,000 CNY / MT or 72,500 USD. The resilience in the metal’s price has pushed listed Australian producers Liontown Resources Ltd ASX:LTR (LTR) and Core Lithium Ltd ASX:CXO (CXO) higher by 6.3% and 5.6%, respectively, in the morning trade.
Demand for energy storage solutions due to the continued public and private interest in wind and solar power installations, plus the massive ramp-up of international electric vehicle production, is keeping the current lithium supply lines ultra-tight.
The week ahead in data
Tuesday reveals the minutes of the closely watched Reserve Bank of Australia (RBA) meeting, Chinese economic output through September and Chinese retail sales.
Chinese economic data will indicate the direction for our largest exporters in FMG and BHP. A stutter in productivity may well spell out a speedbump to the demand for iron ore and the presently overheating labour market.
The RBA minutes will be pored over for guidance on inflation at home. Though house prices in the key markets of Sydney and Melbourne have declined, the nationwide rental market remains very tight.
We are likely nearing an inflection point in global inflation, with the international rental market the biggest hurdle to overcome. Returning or shifting labour forces due to pandemic restrictions and increased demand from expanding resource sectors have ramped up housing demand.
A sharp rise in raw material prices to complete projects have affected developers. Movement restrictions under COVID stifled project progress, as has backlogged bureaucracy required for commencement and completion.
The perfect storm has driven rental markets from Singapore to the UK, the US and Australia to record highs. As these factors begin to unravel in late 2022, we can expect the 2023 rental markets to subside internationally and global inflation to return to policymaker targets of 2%.
Fuel, transportation, and shipping costs are nudging in the consumers’ direction; however, those struggling to find a rental or an affordable mortgage might have to wait a little longer.