Donald Trump calls on the Federal Reserve to cut interest rates aggressively, to negative territory. (AP: Alex Brandon, file photo)
Australian shares are likely to open modestly higher, following an Apple-led technology rally on Wall Street.
Market snapshot at 7:45am (AEST):
- ASX SPI futures +0.4pc at 6,663, ASX 200 (Wednesday’s close) +0.4pc at 6,638
- AUD: 68.62 US cents, 55.63 British pence, 62.33 euro cents, 73.99 Japanese yen, $NZ1.07
- US: Dow Jones +0.3pc at 26,909, S&P 500 flat at 2,979, Nasdaq flat at 8,084
- Europe: FTSE 100 +1pc at 7,338, DAX +0.7pc at 12,359, CAC +0.4pc at 5,618, Euro Stoxx 50 +0.5pc at 3,517
- Commodities: Brent crude -2.2pc at $US61/barrel, spot gold -0.7pc at $US1,496/ounce, iron ore +1.5pc at $US94.66/tonne
By 7:05am (AEST) ASX futures were up 26 points or 0.4 per cent.
The Australian dollar is steady at 68.6 US cents.
Meanwhile, US President Donald Trump was active on social media overnight and, in a series of tweets, urged the “boneheads” at the Federal Reserve to slash interest rates into negative territory.
It represents a backflip for Mr Trump as he previously told reporters at the White House, last month, that he did not want to see negative rates in the United States.
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt,” Mr Trump posted on Twitter.
“INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.
“We have the great currency, power, and balance sheet… The USA should always be paying the … lowest rate. No Inflation!
“It is only the naivete of [Fed Chairman] Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”
“A once in a lifetime opportunity that we are missing because of ‘Boneheads’.”
Negative rates are usually a last resort, used reluctantly by central banks to battle weak economic growth — but would punish savers who are relying on interest from their bank deposits.
Furthermore, US Government debt has ballooned to $US22 trillion under Mr Trump’s presidency.
The US President also did not address the risks or financial market tensions that central banks in Europe and Japan have confronted as a result of their negative rate policies — or the larger issue that negative rates have not secured higher growth or higher inflation for those economies.
Mr Trump’s comments precede a week in which the world’s major central banks are expected to lower rates (or introduce stimulus measures) in what is widely seen as a move to protect the global economy against risks — partly arising from his trade war with China.
The European Central Bank is expected to cut rates by 10 basis points to -0.5 per cent at 10:45pm (AEST) tonight.
Analysts are also predicting the Fed will cut rates by 0.25 percentage points next week.
However, that is unlikely to satisfy Mr Trump, as the US central bank would need to slash rates aggressively — by more than 2 percentage points — to hit negative territory.
While perhaps appropriate in “recessionary” conditions, zero or negative rates in a growing economy with record-low unemployment “may ultimately create the next financial crisis”, said Mark Luschini, chief investment strategist at Janney Montgomery Scott
That is because “people [are] taking on more risk than they would otherwise because money is even cheaper.”
China’s olive branch boosts Wall Street
Apple’s share price jumped 3.2 per cent, taking its market value back above $US1 trillion.
It comes a day after Apple launched a new range of iPhones and its TV streaming service to compete directly with Netflix.
Other tech companies also enjoyed solid gains, including Facebook (+1.3pc) and Google’s parent company Alphabet (+1.2pc).
This helped push the Nasdaq index 1.1 per cent higher, while the benchmark S&P 500 rose 0.7 per cent.
The Dow Jones index jumped 227 points, or 0.9 per cent, to 27,137.
Market sentiment was also boosted by China’s announcement that it would exempt 16 US products from tariffs.
It was a move viewed by many investors as a show of good faith just days ahead of mid-level negotiations aimed at resolving the long-running trade war, which has rattled markets and bruised world economies.
The trade hopes also aided in pushing European shares to close at a six-week high, with London’s FTSE jumping 1 per cent and Germany’s DAX up 0.7 per cent.
Spot gold has lifted 0.7 per cent to $US1,496 an ounce.
Meanwhile, oil prices tumbled on reports that Mr Trump weighed easing sanctions on Iran to help secure a meeting with Iranian President Hassan Rouhani later this month.
If Iran sanctions were to be eased, it could boost global crude supply at a time of lingering worries about global energy demand.
Brent crude dropped 2.2 per cent to $US61.08 per barrel.