An expected interest rate hike in Australia is the main macroeconomic and stock market event in Asia on Tuesday, but any investor who fails to take full account of the unfolding energy and economic crisis in Europe is, frankly, guilty of gross negligence. .
With US markets closed Monday for Labor Day, events in Europe took center stage. The euro fell below $0.99 for the first time in 20 years, stocks tumbled, bond yields rose and gas prices surged after Russia said its main gas supply in Europe would remain closed.
The energy crisis is snowballing, recession is at hand, inflation could exceed 20% next year according to Goldman Sachs, and the pound sterling is half a cent from its lowest level in 37 years against the dollar.
On Monday, Deutsche Bank warned that the risk of a UK balance of payments crisis “should not be underestimated”.
It’s hard to imagine the Asian or American markets emerging unscathed from an impending winter of strong discontent in Europe. It remains to be seen to what extent this risk is priced into global markets today.
Any relief from the 25% fall in world oil prices since June will have been cut short by the decision by OPEC+ members on Monday to cut production by 100,000 barrels a day to support prices. Brent rose by around 2.5% to go back above $95/bbl.
In Asia, Monday’s local attention will be on the Australian rate decision. Economists expect the RBA to raise the bank rate another 50 basis points to 2.35%. The RBA entered the global tightening race late, and has raised rates by 175 basis points since May.
GRAPH: RBA Bank Rate and Inflation (
)
Key developments that should provide more direction to the markets on Tuesday:
Reserve Bank of Australia rate decision
Australia Current Account (T2)
Japanese household spending (July)
UK, Germany, France and Eurozone PMI (August)