ASX to slip ahead of record deflation, Wall Street rally loses steam

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The local share market is expected to fall slightly this morning, as global markets stalled ahead of some key economic events.

By 7:15am (AEST), ASX futures were down 0.4 per cent.

However, the Australian dollar was steady at 71.53 US cents.

Australia’s corporate profit reporting season will begin today, with Rio Tinto announcing its half-year results at 4:15pm (AEST), just after the local market close.

Gold prices are still hovering around their highest values ever, with investors driving up (+0.9pc) the spot price to $US1,959 an ounce overnight.

In a research note, Goldman Sachs analysts said there were emerging concerns about the “longevity of the US dollar as a reserve currency”.

“We have long maintained gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows.”

Gold has jumped by more than $US125 in just over a week, and has surged by 34 per cent since its coronavirus panic sell-off in March.

Australia tipped for deflation

At 11:30am AEST, the Bureau of Statistics will publish its Consumer Price Index (CPI) for the June quarter, a key gauge of inflation.

Economists are expecting consumer prices overall to have fallen by 2 per cent since the previous quarter, its worst result ever.

They are also expecting the CPI to have fallen by 0.4 per cent, since last year’s June quarter.

Free child care during the early months of pandemic, lower petrol prices, cheaper rents, healthcare premium deferrals and widespread travel bans will likely contribute to a steep fall in consumer prices in the June quarter.

“This would be the biggest quarterly fall on records dating back to 1948 and the first negative annual print since 1997,” Commonwealth Bank international economist Kim Mundy said.

Also, the US Federal Reserve will wrap up its two-day policy meeting on Thursday morning (AEST), and markets will be paying close attention to what its chairman Jerome Powell will say about the economic outlook.

Investors are betting the world’s largest central bank, the US Federal Reserve, will reaffirm an ultra-lenient monetary policy (or “do whatever it takes” approach).

Markets retreat

On Wall Street, the Dow Jones lost 205 points, or 0.8 per cent, to 26,379.

The S&P 500 fell by 0.7 per cent to 3,218 points.

The Nasdaq dropped by 1.3 per cent to 10,402 as major technology giants weighed on the index.

There were heavy losses for Amazon (-1.8pc), Alphabet (-1.7pc), Facebook (-1.5pc) and Apple (-1.6pc), which are due to report their quarterly earnings this week.

Also weighing on sentiment was the smaller-than-expected $US1 trillion coronavirus aid package unveiled by Senate Republicans on Monday (local time).

In four days, unemployment benefits will expire for millions of Americans, while Republicans and Democrats have yet to reach an agreement on further stimulus.

“There has to be tremendous compromise from both parties to get to some agreement,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

He also noted a congressional recess was scheduled for August, adding further deadline pressure.

“It’s particularly critical at this time since the market is really feeding off the largesse that’s been expended by fiscal and monetary authorities.”

In Europe, Germany’s DAX was flat, while Britain’s FTSE gained 0.4 per cent.

Brent crude oil has slipped (-0.4pc) to $US43.24 US dollars a barrel.

ABC/Reuters

By business reporter David Chau, wires (Original ABC Article)

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