Markets Overview

  • ASX SPI 200 futures up 0.1% to 7,452.00
  • Dow Average down 0.1% to 34,050.71
  • Aussie up 1.0% to 0.7125 per US$
  • U.S. 10-year yield fell 11.6bps to 3.3911%
  • Australia 3-year bond yield rose 2.5 bps to 3.21%
  • Australia 10-year bond yield rose 1.8 bps to 3.57%
  • Gold spot up 0.7% to $1,941.59
  • Brent futures down 2.6% to $83.21/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 98-Day Bills
  • 10:30: (AU) Australia to Sell A$500 Million 154-Day Bills
  • 11:00: (AU) Australia to Sell A$1 Billion 126-Day Bills
  • 11:30: (AU) 4Q NAB Business Confidence, prior 9
  • 11:30: (AU) Dec. Building Approvals MoM, est. 1.0%, prior -9.0%
  • 11:30: (AU) Dec. Private Sector Houses MoM, prior -2.5%

US stocks rose with Treasuries as Federal Reserve Chair Jerome Powell said the central bank has made progress in its battle against inflation, even as he warned that additional rate hikes are likely warranted.

The S&P 500 jumped more than 1% after Powell said the “disinflation process has started,” suggesting the aggressive tightening cycle is starting to have its desired effect of reducing the pace of price growth. The Nasdaq 100’s gains exceeded 2%.

Stock futures extended gains after the cash close when Meta Platforms Inc. reported sales that topped estimates on strong demand for advertising. Shares in the Facebook parent surged more than 15% in late trading.

While megacap earnings continue to roll in, the Fed’s latest policy decision and Powell’s comments dominated sentiment during the regular session. The two-year yield sliding as much as 12 basis points to 4.08%, while the 10-year rate touched 3.38%. A dollar index fell to its lowest since April. Swaps traders are now pricing in a rate cut of about half a percentage point in the second half of the year.

Other News

Australia will likely dodge recession this year even as its economic growth is set to more than halve on a combination of rising interest rates and a weakening global expansion, the International Monetary Fund said.

“Australia’s economy is expected to come to a soft landing in 2023, although risks are skewed significantly to the downside,” IMF staff said in the concluding statement of their Article IV mission released on Thursday.

They pointed to “tighter financial conditions, erosion of real incomes amid high inflation, declining housing prices, and soft global growth” as threats.

The fund expects the A$2.2 trillion ($1.6 trillion) economy to expand 1.6% this year, down from an October forecast of 1.9%, and cut its 2022 estimate to 3.6% from 3.8%. Inflation is seen staying elevated at 5.5%, up from October’s 4.8%.

It highlighted the need for the government to tighten fiscal policy and the Reserve Bank to keep raising borrowing costs to cool price pressures.

“Restrictive macroeconomic policies are needed in the near term to mitigate strong domestic demand and address inflation,” the IMF said. “The pace of rate increases should continue to be data-dependent.”

Data last week showed inflation shot up to 7.8% in the fourth quarter, the fastest pace in 32 years, boosting bets for a 25-basis-point hike at the RBA’s first meeting of the year on Tuesday.

A senior RBA official said Wednesday that CPI likely peaked last quarter.

The IMF said the current 3.1% cash rate is in “broadly neutral territory” and said that staff expect it to peak at around 3.85% in the second quarter.

Other data point to early signs of easing demand in response to the central bank’s 3 percentage points of hikes between May and December. Retail sales were surprisingly weaker than forecast and employment growth is slowing too.

IMF estimates show inflation in Australia will decline gradually while remaining above the RBA’s 2-3% target until 2024. The central bank will publish its own updated economic forecasts on Feb. 10.