Markets Overview

  • ASX SPI 200 futures little changed at 7,220.00
  • Dow Average up 0.2% to 33,099.33
  • Aussie little changed at 0.6806 per US$
  • U.S. 10-year yield fell 4.3bps to 3.8749%
  • Australia 3-year bond yield rose 2.3 bps to 3.60%
  • Australia 10-year bond yield rose 1 bp to 3.88%
  • Gold spot down 0.1% to $1,823.28
  • Brent futures up 1.9% to $82.15/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$600 Million 2.75% 2029 Bonds

Tech led stock gains in a jittery session before inflation data that will help shape the views on whether a soft landing is on the table amid the Federal Reserve’s most-aggressive tightening campaign in a generation.

After erasing a rally of almost 1%, the S&P 500 came back higher and halted a four-day selloff. The index regained its 4,000 support broken earlier in the week in a fight to stay above a key uptrend line from the October low. The Nasdaq 100 outperformed as huge names like Microsoft Corp. and Apple Inc. rebounded and a bullish revenue forecast from Nvidia Corp. sent the shares up 14%.

Friday’s personal consumption expenditures index is expected to bring an acceleration in both headline and core inflation. In the run-up to the numbers, data showed US growth in the fourth quarter was weaker than previously estimated while the Fed’s preferred inflation figures were revised higher. Separate data highlighted unrelenting labor-market tightness.

Retail traders have retaken a bearish view that dominated their outlook for much of last year after a raucous stock rally hit a wall this month. Following two weeks of tepid optimism, the bull-bear spread from the American Association of Individual Investors survey flipped to -17 in the week ending Feb. 22, the most pessimistic stance since the start of the year.

Other News

Australia’s public sector labor unions are confident of securing bigger wage rises this year as a tight job market and surging living costs boost their bargaining power, raising the risk of yet another driver of inflation.

Nurses, teachers and transport workers have already secured annual pay rises of up to 4.5% in new agreements, according to several major unions. That’s well ahead of the 3.3% overall gain recorded in this week’s wage price index.

Across Australia, negotiations for new public sector pay agreements are beginning to take place at levels in excess of the 1.5-3% ceilings that many governments had previously imposed to contain budget costs.

A jump in public sector pay, which has trailed the private sector in the current upswing, would add impetus to nationwide salary increases and boost the case for further policy tightening. Money market are currently pricing in the Reserve Bank’s peak rate at 4.2%, from 3.35% now.

“The biggest risk for the RBA at the moment is that inflation is stickier and stays for longer than they expect,” said Catherine Birch, a senior economist at Australia & New Zealand Banking Group. “It’s certainly something weighing on their mind — the potential for upside risks to inflation and then wages.”

Australia’s wage growth has trailed developed-world peers as the nation’s industrial relations system takes time to gather momentum. That’s fueled fears of building pressures in the pipeline that may take policymakers by surprise.

Inflation expectations climbed to a record high last month and may help explain the RBA’s recent hawkish shift. If price expectations become unanchored then higher inflation could become entrenched and unleash even bigger pay demands, in a vicious cycle.

Peter Munckton, chief economist at Bank of Queensland, reckons wage growth will head higher this year partly driven by the public sector. “It is in recognition that the jobs market will remain tight for this year and inflation will still be relatively high,” he said.