Chapter 1: What is the main topic discussed in this episode?
A listener production.
The ASX to open lower after last night's ambitious federal budget. US markets mixed after hotter than expected inflation. And why Australia has some of the highest mortgage rates in the developed world. Hello, good morning. I'm James Gruber.
Chapter 2: What are the key highlights of the federal budget affecting the ASX?
It's Wednesday, the 13th of May. And this is the morning edition of the ComSec Market Update. Well, this morning is all about the federal budget handed down by the government last night. There weren't too many surprises after much of it was leaked in the weeks before. Here are some of the budget's key headlines. Negative gearing for new buyers will be restricted to new homes from 2027-28 onwards.
Chapter 3: How does inflation impact US markets and the ASX?
For established homes, losses can be used to offset other property income and carried forward. The 50% capital gains tax discount will be replaced by the taxation of real gains from 2027-28 for all assets, with a likely exception for tech and start-ups purchased from now, and will face a minimum tax rate of 30%.
CGT on existing assets will be assessed using a proportionate mix of the old and new tax models based on holding years. There'll also be a minimum tax on discretionary trust distributions of 30%.
Chapter 4: Why does Australia have some of the highest mortgage rates in the developed world?
And there'll also be a phased reduction of the EV fringe benefit tax break. Finally, the budget delivered a $215 income tax offset for all salaried workers for 2027-28%. All up, the projected budget deficits are now slightly lower over the budget period by around $45 billion, mainly due to more windfall revenue.
CBA economists think this is a big plus from the budget, that is, the improvement in the budget position driven by NDIS savings and new revenue measures. But they say the negative is that there will still be higher spending in the near term. which will make the RBA's job to bring down inflation harder.
All up, they describe the having big ambitions with mixed results, and they maintain their view that interest rates will remain on hold for the remainder of this year. So how will the market receive this budget? Well, index futures are fairly muted, down 0.1%.
But given the budget leaks, perhaps much of the reaction was already priced in, with the ASX lagging most other major markets over the past week. Let's now take a deeper look at what's happened with commodities and currencies overnight. On commodity markets, global oil prices rose as hopes of peace in the Middle East dwindled. Brent crude futures settled 3.4% higher at $107.77 a barrel.
Base metal prices were higher due to supply issues and bullish technical signals. Copper futures rose 1.1% while aluminium futures jumped 1.7%. Let's take a look at currencies. They were lower against the US dollar as investors sought to dial down risk. The euro dipped 0.4% to 1.1741 US dollars. The Japanese yen fell 0.3% to 157.59 yen. And the Aussie dollar declined 0.2% to 72.38 US cents.
Let's head to Wall Street. The Dow Jones index finished up 0.1%, the S&P 500 was down 0.2% and the Nasdaq fell 0.7%.
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Chapter 5: What changes are proposed for capital gains tax in the federal budget?
A closer look at the trading day there, the S&P 500 and the Nasdaq eased from record highs on Tuesday as hotter than expected inflation data and an increasingly tenuous US-Iran ceasefire prompted investors to take money off the table near the end of a robust first quarter earnings season.
Of the 11 major sectors in the S&P 500, tech was among the worst performers with the semiconductor index tumbling 1.4%. Recent high-flying semiconductor stocks such as Qualcomm and Intel pulled back down 11% and 9% respectively. Elsewhere, Humana advanced 8% on a broker upgrade. GameStock dipped 3.5% following eBay's rejection of the meme stock's $56 billion US takeover bid.
Zebra Technologies jumped 11% after the barcode scanner maker raised its annual sales growth forecast, betting on robust demand for its products that help automate manufacturing workflows. Hims and Hers Health tumbled 14% after the telehealth firm missed Wall Street estimates for first quarter revenue and posted a surprise loss. In U.S.
economic data has mentioned inflation increased further in April with the annual rate posting its largest gain in three years. The consumer price index increased 0.6% last month after surging 0.9% in March. U.S. government bond yields meanwhile rose on Tuesday as oil prices increased on concerns about continued energy supply disruptions in the Middle East while data showed that U.S.
consumer prices rose at a brisk clip for a second straight month in April. The U.S. 10-year Treasury yield was five points higher to 4.46%, while the U.S. 2-year Treasury yield advanced four points to 3.99%. To the European markets now, the continent-wide FTSE Euro First 300 index ended down 1% and the UK FTSE 100 was flat.
Europe was lower in broad-based declines on Tuesday as dimming hopes for a US-Iraq peace deal sent oil prices higher and weighed on risk sentiment. Technology shares slid 3.1% and led declines on Tuesday, tracking steep losses among AI stocks and chipmakers on Wall Street.
British heavyweight banks such as Barclays and Lloyds fell 3% and 4% respectively, as the UK Prime Minister Keir Starmer faces calls to step down. A 6% fall in Munich Re weighed on the insurance sector after the German reinsurer posted disappointing property and casualty revenue in the first quarter.
Shares of Bayer jumped almost 4% after the German firm reported a better-than-expected quarterly operating profit. It's now time for the watch list. In Australia, we have earnings updates from CBA, Aristocrat Leisure and Ascent. There's also the release of the Wage Price Index for the March quarter. In the US, Cisco reports earnings.
There's also the Purchasing Price Index or PPI for April with an increase of 0.5% month-on-month tipped. And now it's time for our One More Thing segment. Australia has the highest cash rates among developed market peers. Our 4.35% rate is well above America's 3.64%, the UK's 3.75%, Germany's 2%, and New Zealand's 2.25%. Why are our rates high?
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