Markets Overview

  • ASX SPI 200 futures up 0.6% to 7,236.00
  • Dow Average up 1.3% to 33,274.15
  • Aussie down 0.4% to 0.6683 per US$
  • U.S. 10-year yield fell 8.2bps to 3.4676%
  • Australia 3-year bond yield fell 4.2 bps to 2.94%
  • Australia 10-year bond yield fell 6.1 bps to 3.30%
  • Gold spot down 0.6% to $1,969.28
  • Brent futures up 1.6% to $79.89/bbl

Economic Events

  • 09:00: (AU) March Judo Bank Australia PMI Mfg, prior 48.7
  • 11:00: (AU) March Melbourne Institute Inflation, prior 6.3%
  • 11:00: (AU) March Melbourne Institute Inflation, prior 0.4%
  • 11:30: (AU) Feb. Owner-Occupier Loan Value MoM, prior -4.9%
  • 11:30: (AU) Feb. Investor Loan Value MoM, prior -6.0%
  • 11:30: (AU) Feb. Home Loans Value MoM, est. -1.8%, prior -5.3%
  • 11:30: (AU) Feb. Private Sector Houses MoM, prior -13.8%
  • 11:30: (AU) Feb. Building Approvals MoM, est. 10.0%, prior -27.6%

US equity futures slipped and the yen weakened as traders rushed to recalibrate for renewed inflationary risks after OPEC+ announced a surprise oil production cut. WTI crude futures surged more than 7%.

Contracts for the S&P 500 fell about 0.2% Monday as positive sentiment from Friday evaporated. Futures for the Nasdaq 100 dropped 0.3%. The S&P 500 had jumped 3.5% last week, the most since November. The tech-heavy Nasdaq 100 gained 1.7% Friday, helping it to notch its biggest quarterly gain since June 2020.

The Japanese currency depreciated about 0.3% versus the dollar early Monday in a reflection of the nation’s heavy reliance on oil imports. The Norwegian krone led gains among Group-of-10 currencies, with the Scandinavian country an initial beneficiary of higher energy prices.

The bumpy open to Monday trading and fears of rising prices contrasts with the mood Friday when US stocks rallied after a key measure of inflation cooled, suggesting the Federal Reserve may be close to ending its rate-hiking campaign.

Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate. Meanwhile, the PCE price index was up 5% from a year earlier, a deceleration from January but far higher than the Fed’s 2% goal.

Stock futures for Australia, Japan and Hong Kong had all pointed to gains when those markets opened — before the move by OPEC+ to reduce production by more than 1 million barrels a day. The group had previously given assurances that it would hold supply steady.

Traders will also be bracing for the opening of Treasuries later this morning. They ended the quarter of wild swings higher on Friday with the two-year yield fell to around 4.03% while the 10-year maturity dipped to 3.47%.

Other News

Economists are divided over whether the Reserve Bank of Australia will raise interest rates for an 11th consecutive meeting or pause its most aggressive tightening cycle since 1989 amid cooling economic momentum.

Sixteen economists surveyed by Bloomberg News, including Commonwealth Bank of Australia and Westpac Banking Corp., forecast the RBA will stand pat at 3.6% on Tuesday, as do money markets. Goldman Sachs Group Inc. and ANZ Group Holdings Ltd. are among 11 that see a quarter-point hike to 3.85%.

“This is looking like a finely balanced decision,” said James Wilson, a senior portfolio manager at Jamieson Coote Bonds in Melbourne. He is expecting either “a dovish hike or a hawkish hold” from Australian policymakers.

The RBA meets after the Federal Reserve and the European Central Bank pushed ahead with policy tightening irrespective of financial volatility caused by banking collapses. By contrast, the Bank of Canada and Bank of Korea opted to stay on the sidelines as higher rates slow inflation and their economies.

Given South Korea came before the bank stress and Canada’s move was long telegraphed, a pause by Australian policymakers would be the first by a major developed-world central bank since the crisis began.

Governor Philip Lowe has surprised markets at the past two meetings: first with a hawkish tone in February that set the stage for that month’s global bond rout; and then with a dovish tack in March in a shift that appeared more in tune with souring global sentiment.

Lowe’s February take came after a report showed hot inflation in the final three months of 2022; his March comments followed monthly data suggesting the fourth quarter was likely CPI’s peak. That has since been backed by a second monthly report that again came in cooler than expected.

Economists favoring an RBA pause cite the faster-than-expected easing of inflation in February and more subdued consumer spending as well as worries about bank stresses becoming systemic.

“The domestic economy is now showing sufficient signs of slowing and we expect the RBA board will judge that a pause in the tightening cycle is the appropriate move,” said Gareth Aird, head of Australia economics at CBA, the nation’s largest lender. “The RBA does not want a recession.”

Another worry is the impending expiry of a swathe of home loans fixed for two-to-three years at record low rates during the pandemic. Around 90% of fixed mortgages rolling off this year will see repayments increase by 30% or more, according to an RBA paper last month.

Australian households are among the most leveraged in the developed world, with a debt-to-income ratio of almost 188%, underlining the need for the RBA to tread with caution.