Labor will form government – possibly in its own right – despite garnering less than one-third of the vote, after a night of chaos in which the ranks of the Coalition were decimated by teal independents, the opposition and the Greens.
Treasurer Josh Frydenberg is among the six Liberals who were either defeated or facing defeat in their once blue-ribbon seats by the Climate 200-backed teal independents.
On Wall Street, seven straight weeks of losses for stocks and now a narrowly averted collision with a bear market have left prognosticators lost. While this episode may lack the pandemic’s shock, it makes up for it in the sheer number of cross-currents. First and foremost is the Federal Reserve, bent on wringing excess from the economy. Add to that war, snarled supply chains and equity valuations that were recently at two-decade highs.
The result has been a wide variance in predicted outcomes. After another six strategists slashed year-end calls for the S&P 500 this month, the gap between the highest and lowest projection sits at 37%. That big of a divergence has prevailed only one other time in the past decade at this time of year: just after the tumultuous selloff of March 2020.
On Friday, US stocks pulled back from session lows after the S&P 500 dipped 20 per cent below its January 3 closing record. Treasuries and the dollar gained as havens caught bids.
The benchmark dropped less than 1 per cent, catching bids in the last hour trading. It earlier fell more than 2 per cent earlier, where a close at that level would meet the common definition for a bear market.
Local: RBA assistant governor Christopher Kent speech.
Overseas data: US Chicago Fed index; Euro zone German IFO business climate survey
ASX futures down 15 points or 0.2% to 7129
- AUD -0.1% to 70.40 US cents
- Bitcoin -2.4% to $US29,242.00 at 11.14pm AEST
- On Wall St: Dow +0.1% S&P 500 flat Nasdaq -0.3%
- In New York: BHP +2.2% Rio +2.4% Atlassian +1.5%
- Tesla -6.4% Apple +0.2% Amazon +0.2%
- In Europe: Stoxx 50 +0.4% FTSE +1.2% DAX +0.7% CAC +0.2%
- Spot gold +0.2% to $US1,846.50 /oz
- Brent crude +0.5% to $US112.55 a barrel
- US oil +0.3% to $US110.28 a barrel
- Iron ore +6.1% to $US6.1% to $134.25 a tonne
- 2-year yield: US 2.58% Australia 2.45%
- 5-year yield: US 2.80% Australia 2.99%
- 10-year yield: US 2.78% Australia 3.31% Germany 0.94%
From today’s Financial Review
Labor-Green climate showdown: Anthony Albanese will be sworn in on Monday as Australia’s 31st prime minister after an extraordinary election in which the Liberal Party was decimated.
The teal wave will hit Labor, Greens next: The teal wave that swept Scott Morrison out of office is likely to spread to seats held by Labor and the Greens at the next election as professional women seek candidates who are socially progressive.
Climate voters herald an irrevocable change to politics: The Coalition, which has weaponised climate change policy at every election since 2010, found itself for the first time on the receiving end, with the most brutal of consequences.
It’s been hard to watch, impossible to predict and a nightmare to trade. But has the S&P 500’s slide been an unqualified panic to date? By some measures no, and that might bode poorly for equities in the near term, write Bloomberg’s Katie Greifeld and Vildana Hajric.
Even with the US stock benchmark plunging 20% from a record for the first time since March 2020, trading volume has been pretty average and the Cboe Volatility Index is below this month’s highs. Meanwhile, the Cboe SKEW Index — implied volatility for bearish S&P 500 put contracts relative to calls — is close to two-year lows.
The relative lack of anxiety isn’t necessarily a good thing, from contrarian lenses. That the S&P 500’s path has remained relatively orderly without any obvious sings of panic suggests that the bottom isn’t yet in view, according to AlphaTrAI’s Max Gokhman. Layer on a Federal Reserve that’s intent on looking past the turmoil in pursuit of tighter financial conditions, and the outlook is gloomy.
“Investors holding their breath may wind up passing out because there’s more to this drop before the roller-coaster year starts grinding back up,” said Gokhman, the firm’s chief investment officer. “With the Fed as the ride’s operator, we shouldn’t expect a gentle glide back to the station. Only one-third of tightening cycles ended without a recession and they all started when inflation was under 3.3%.”
The stars could be aligning for private equity to launch a fresh shopping spree in the UK. That would see the second half of this year revive the post-Brexit buyout boom that culminated in the £9.8 billion ($12.2 billion) deal for Wm Morrison Supermarkets last October.
Rising valuations eventually ended last year’s British dumpster dive. But sharp falls in the shares of what was already a relatively cheap UK market have seen deal flow creep back up.
On Thursday, domestic repairs firm HomeServe agreed to be bought by Brookfield Asset Management for £4.6 billion including assumed net debt. HomeServe shares had tumbled so much that the offer didn’t match their pre-bid one-year high despite its 71% premium.
Days earlier, KKR & Co. secured a £4.9 billion deal to purchase ContourGlobal, offering shareholders a smidgen above the price of the utility’s 2017 initial public offering. The shares have traded below that level for the last four years. Founding shareholder Reservoir Capital Group, still with 71% of the business, has given the thumbs up.
UK assets are a lot more affordable now for dollar-based funds. The pound is down more than 10% against the greenback since May 2021. The FTSE 250 index of midsized companies (whose constituents are conveniently sized for buyouts) is down over 25% in dollar terms from its September peak. That’s almost as much as the Nasdaq Composite’s fall from its recent high.
Morgan Stanley analysts reckon the UK market is extremely cheap on a historical basis. Last month, they looked at the multiple of earnings at which shares have traded at since 1980 (adjusting for the economic cycle): UK stocks were at roughly 1% below their average, US stocks 58% above.
China’s almost-trillion US dollar hedge fund industry risks worsening the turmoil in its stock market as deepening portfolio losses trigger forced selling by some managers.
About 2,350 stock-related hedge funds last month dropped below a threshold that typically activates clauses requiring them to slash exposures, with many headed toward a level that mandates liquidation, according to an industry data provider. Such signs of stress were “close to the historical high,” China Merchants Securities Co. analysts said in a report this month.
“The pressure on the market can be fairly big following the industry’s rapid expansion last year, especially if the quant funds’ reductions are concentrated,” given similarities in their trading strategies, said Yan Hong, director of the China Hedge Fund Research Centre at the Shanghai Advanced Institute of Finance. While not normally a problem, these measures are “forcing many hedge funds to sell” in this year’s “highly volatile market,” he said.
Despite brief periods of respite, China’s benchmark CSI 300 Index had its worst January to April period since 2008. It has fallen about 17% so far this year, as a stringent Covid Zero policy and crackdowns on private enterprise combined to sap investor confidence. A slew of disappointing economic data from China this month also highlighted the growing toll of a lockdown-dependent approach, raising concerns that markets will remain under pressure unless China shifts its approach.
Richemont chairman Johann Rupert said Chinese demand will be slower to recover than expected, clouding prospects for a market that’s fuelled the luxury industry’s recent growth.
The chairman said on a call with reporters that his “gut feeling” is that the Chinese economy is going to suffer the impacts of Covid and lockdowns longer than most people think and that the country’s rebound will be slower than that of others. Richemont owns luxury watch and jewellery maker Cartier.
“The country is going to take an economic blow,” said Rupert, who founded Richemont in 1988. “There will be a temporary contraction.”
He said investors shouldn’t expect a triple-digit rebound in China and that it will be slower than the recent U.S. recovery. Big companies in China are likely to cut jobs, weighing on consumers’ purchasing power, he said.
The ruble surged to the highest level in seven years against the euro. Ukraine’s central bank may return to regular monetary policy decisions as soon as June. The Group of Seven will agree to more than $19 billion in short-term financial aid for Ukraine, Germany’s finance minister said.
Iron ore futures in Singapore were on track for the first weekly advance in five as China’s move to slash borrowing rates and shrinking stockpiles of the steelmaking raw material buoyed sentiment. Base metals also rose.
Futures in Singapore surged more than 6% after midday trading, marking its largest daily increase since mid-March. Chinese banks cut a key interest rate for long-term loans by a record amount on Friday, a move that would reduce mortgage costs and may help counter weak loan demand. Meanwhile, iron ore stockpiles at major Chinese ports dropped for an eighth consecutive week, according to Mysteel data compiled by Bloomberg.