The primary macro and market event in Asia on Tuesday is an expected interest rate rise in Australia, but any investor who is not paying full attention to the energy and economic disaster unfolding in Europe by now is, simply, very negligent. With US markets closed for Labor Day on Monday, European happenings grabbed center stage.
After Russia warned its main gas supply pipeline to Europe would remain closed, the euro sank below $0.99 for the first time in 20 years, equities fell, bond rates jumped, and gas prices soared. On Monday, Deutsche Bank cautioned that the possibility of a UK balance-of-payments crisis “should not be underestimated.” It remains to be seen how much of that risk is currently priced into global markets.
Any respite from the 25% drop in global oil prices since June would have been snuffed out by OPEC+ members’ agreement on Monday to cut output by 100,000 barrels per day in order to boost prices. The local emphasis in Asia on Monday will be Australia’s interest rate announcement. Economists anticipate the RBA raising the cash rate by 50 basis points to 2. 35%. The RBA was a late entry into the global tightening race, raising rates by 175 basis points (bps) since May.