Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,357.00
  • Dow Average up 1.1% to 34,029.69
  • Aussie up 1.4% to 0.6784 per US$
  • U.S. 10-year yield rose 5.4bps to 3.4449%
  • Australia 3-year bond yield rose 3.5 bps to 2.94%
  • Australia 10-year bond yield rose 3 bps to 3.27%
  • Gold spot up 1.3% to $2,040.32
  • Brent futures down 1.2% to $86.32/bbl

Economic Events

Asian equity markets are set for gains following a rally in US stocks as economic data fueled expectations the Federal Reserve is nearing the end of its most aggressive rate-hike cycle in decades.

Futures for equity benchmarks in Australia, Japan and Hong Kong all signal markets will open higher. US futures dipped in early Asia trading after the S&P 500 rose the most this month and the tech-heavy Nasdaq had the best day since the middle of March.

Asian currencies were little changed, following gains that sent the Aussie and kiwi up more than 1% on Thursday. The dollar fell against all of its Group-of-10 peers for a second day, sending a gauge of the greenback’s strength to a more than two-month low.

Treasuries climbed early in New York trading, only to give up gains with yields ticking higher in the afternoon session amid improved risk sentiment. The policy-sensitive two-year yield, however, stayed within a narrow range around 3.97% as the market continued to lean toward a quarter-point Fed hike in May with the central bank then expected to pause over the summer.

US stocks rallied Thursday as jobs and factory-gate inflation data were weaker than economists forecast. Jobless claims for the week ended April 8 rose to 239,000, compared with a median estimate of 235,000, adding to evidence the labor market is starting to soften. Meanwhile, producer prices fell in March by the most since the start of the pandemic.

“Basically what the data are showing is two things,” said Que Nguyen, chief investment officer of equity strategies at Research Affiliates. “The first is that inflation is not surprising to the upside, and at the same time, the job market seems stable. And so what we’re getting today is sort of an optimistic outlook that we’re going to have an almost like a Goldilocks situation where inflation’s going to slow, but the economy is not crashing.”

Banks, including JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., will kick off the earnings season on Friday, with executive commentary on the probability of a recession in focus.

Other News

Australia’s outdated tax system is buckling under spending pressure, prompting the Labor government to explore options to boost revenue to pay for programs including a vast defense build up and health care weeks before budget day.

At the heart of the problem are large areas of wealth that are all-but exempt from taxation, leading to an over-reliance on income taxes that are already among the highest in the developed world. At a time when the economy is fully employed and commodity prices are elevated, Australia is forecast to run a budget shortfall equivalent to 2% of gross domestic product in the fiscal year starting July.

That the budget fails to balance even in good times means there is a structural deficit. The challenge for the center-left government in resolving fiscal issues is to first reconcile the stance of Treasurer Jim Chalmers who appears inclined to support unpopular tax reforms with Prime Minister Anthony Albanese who’s well aware of the political havoc that tax changes can wreak.

Chalmers, who’s due to hand down the budget on May 9, had released a list of concessions worth more than A$150 billion ($100 billion) a year in foregone revenues. That would have been enough to fund the health and disability welfare budget for an entire year or pay for the A$368 billion Aukus nuclear submarines in just 30 months.

“There’s a genuine case to do tax reforms,” said Chris Richardson, a former Treasury official and now independent economist. “This is the richest generation Australia’s ever seen. You’d like to see it paying its own way better than it has been.”

The Economic Society of Australia said that increasing resource levies or imposing land taxes could raise billions of dollars while the Grattan Institute estimated more than A$20 billion in savings from ending certain exemptions.

The government is considering changes to the Petroleum Resources Rent Tax to bolster collections but whether that sails through parliament is another thing. Earlier proposals to rein in fossil fuel companies sparked a backlash while suggestions to do away with tax breaks were shot down.

“The Australian tax system is in a parlous state,” said Ken Henry, who authored the last major reform plan in 2010 when he was an economic official. “It is not capable of raising sufficient revenue to fund the activities of government. Certainly not today.”

Thirteen years ago, the then-Labor government cherry-picked a proposed tax on mining industry super profits. That triggered an industry backlash which overwhelmed the government and played a part in the ouster of then-Prime Minister Kevin Rudd.

Albanese had a front-row ticket to that drama — he was a senior minister in Rudd’s government. Now, he appears reluctant to back changes that weren’t put to voters before Labor’s May 2022 election win when he ruled out any major tax measures beyond closing loopholes for multinational firms.