US Treasury bats away recession fears as European countries look to shore up gas supplies and ASX gets set to sink further

US Treasury bats away recession fears as European countries look to shore up gas supplies and ASX gets set to sink further

Last week marked the Australian Stock Exchange’s worst decline since 2020. The downtrend is set to continue this week, with ASX futures pointing to a weak opening: ASX SPI 200 futures lost 0.3% to 6,345 by the US close. Major US stock indexes closed mixed Friday but finished sharply lower as fears over economic derailment grew on the back of high inflation and tighter financial conditions. The Dow Jones Industrial Average dipped 0.1%, closing near 29,886 and booking a 4.8% weekly decline. The S&P 500 index rose 0.2% Friday, but lost 5.8% for the week and officially entered a bear market while the Nasdaq Composite Index gained 1.4% Friday but fell 4.8% for the week. There was a brief rally last Wednesday, following the Federal Reserve’s 75 basis point rate hike – its largest in nearly three decades. However, that was short-lived as sharp selling took centre stage on mounting fears of a US recession. It is expected the central bank will look to stifle cool inflation by raising rates to nearly 4% by the end of 2023. This would reduce its near $9 trillion balance sheet. Here’s what we saw (source Commsec): The Euro fell from highs near US$1.0530 to lows near US$1.0445 and was near US$1.0500 at the US close. The Aussie dollar fell from highs near US70.00 cents to lows near US69.00 cents and was near US69.30 cents at the US close. The Japanese yen eased from near 133.90 yen per US dollar to JPY135.40 and was near JPY134.95 at the US close. Global oil prices fell on Friday by 5.6-6.8% with interest rate fears slowing global economies and reducing demand for oil. The Brent crude price fell by US$6.69 or 5.6% to US$113.12 a barrel. The US Nymex crude price fell by US$8.03 or 6.8% to US$109.56 a barrel. Over the week Brent fell by 7.3% and Nymex fell by 9.2%. Base metal prices were mostly lower on Friday. Tin fell the most, down 2.6%, but nickel bucked the trend, up 1.6%. Over the week metals fell by as much as 11.7% (tin) while zinc fell 3.5%. The gold futures price fell by US$9.30 or 0.5% to US$1,840.60 an ounce. Spot gold was trading near US$1,839 an ounce at the US close. Over the week gold fell by US$34.90 or 1.9%. The iron ore futures price fell by US$3.66 or 2.7% to US$131.38 a tonne. Over the week, iron ore fell by US$10.99 a tonne or 7.7%. US markets According to US Treasury secretary Janet Yellen,  a recession in the US is not “inevitable” but the economy is likely to slow. “I expect the economy to slow” as it transitions to stable growth, she told the ABC’s ‘This Week’ program, but “I don’t think a recession is at all inevitable”. While the US economy has recovered strongly from the impacts of COVID-19, it is now battling rising inflationary pressures. Yellen said, the US labor market is “arguably the strongest of the postwar period”. She has predicted inflation will slow in coming months. In the first quarter this year, the US economy contracted by 1.5%, the first drop it has endured since 2020. Indicators point to a continued slowdown in manufacturing, real estate and retail sales. Among other sectors. Looking at the general performance of sectors last week, the energy sector fell 5.6% but communication services rose 1.3% and consumer discretionary rose by 1.2%. European markets Finished the week mixed. Oil & gas shares fell by 4% but technology rose by 1.3% and retail rose by 0.9%. The pan-European STOXX 600 index rose by 0.1% but fell by 4.6% over the week. The German Dax index lifted 0.7% on Friday, however, the UK FTSE index fell by 0.4%. In London trade, shares of Rio Tinto fell by 4.9% and BHP fell by 3.3%. Meanwhile, to combat rising energy costs Germany has moved back to coal generation, a move it says is “bitter but indispensable”. The move comes after a drop in Russian gas supplies forced the country into emergency measures. “To reduce gas consumption, less gas must be used to generate electricity. Coal-fired power plants will have to be used more instead,” the German economy ministry said on Sunday. Moscow has reduced flows of natural gas through its pipelines to Western Europe in response to sanctions over its Ukraine invasion, although the official reason is repair work. This is a setback for Germany which had vowed to wind down coal usage by 2030. Italy has also responded. With Russia cutting supply to Italy, Italian company Eni has joined Qatar Energy’s $US28.8 billion project to expand production from the world’s biggest natural gas field. Eni will take a 3% stake in the North Field East Project. France’s TotalEnergies, with its 6.25% share, makes it Qatar Energy’s first, and largest, foreign partner on the development. “Today I’m pleased … to announce the selection of Eni as a partner in this unique strategic project,” Qatar’s energy minister Saad Sherida al-Kaabi, also president and CEO of state-owned Qatar Energy, said. The project’s LNG is expected to come online in 2026, moving Qatar’s LNG production from 77 million tonnes a year to 110 million, Qatar Energy said.

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