Markets Overview

  • ASX SPI 200 futures down 0.5% to 7,164.00
  • Dow Average down 0.8% to 33,414.24
  • Aussie up 0.2% to 0.6673 per US$
  • U.S. 10-year yield fell 8.6bps to 3.3375%
  • Australia 3-year bond yield fell 5.8 bps to 3.13%
  • Australia 10-year bond yield fell 3.5 bps to 3.41%
  • Gold spot up 1.1% to $2,039.81
  • Brent futures down 4.5% to $71.93/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 77-Day Bills
  • 10:30: (AU) Australia to Sell A$500 Million 140-Day Bills
  • 11:30: (AU) March Imports MoM, prior -9%
  • 11:30: (AU) March International Trade Balance, est. A$13b, prior A$13.9b
  • 11:30: (AU) March Exports MoM, prior -3%

Asian stocks are poised for a weak start Thursday on the back of declines in the US after Federal Reserve Chair Jerome Powell threw cold water on expectations of rate cuts anytime soon.

Equity futures for Australia and Japan declined, while those for Hong Kong rose. US-listed shares of Chinese companies dropped in a sign of souring risk sentiment. Contracts for US stocks fell in early Asia trading after the S&P 500 closed near session lows.

The yen, which outperformed Group-of-10 peers on Wednesday against a broadly weaker dollar, edged higher as trading resumed in Asia.

In what may set the stage for more volatility, the $370 billion exchange-traded fund tracking the US equity benchmark (SPY) whipsawed in late trading as concerns over the stability of the financial system resurfaced. PacWest Bancorp tumbled in postmarket trading after people familiar said the Beverly Hills-based bank has been weighing a range of strategic options, including a sale.

In a typical choppy Fed day of trading, US equities rallied after the Fed raised rates by a quarter-point as economists forecast and hinted at a possible pause in the most aggressive hiking cycle since the 1980s. However, equities turned lower later as Powell said there won’t be any rate cuts if the inflation rate remains too high. Treasuries rose and the dollar fell.

The rate debate will resume again later Thursday, with the European Central Bank taking center stage. Policymakers are seen raising the deposit rate by a quarter-point to a 3.25%, which would mark a slowdown in their hiking cycle. The decision is expected at 2:15 p.m. in Frankfurt, followed half an hour later by President Christine Lagarde speaking at a press conference.

Other News

Australia’s fiscal coffers will see a windfall gain from tax revenue due to high commodity prices and low unemployment, Deloitte Access Economics said, even as the nation’s long-term structural deficit worsens.

The budget shortfall for the year to June 30 is estimated at A$8.7 billion ($5.8 billion) or 0.3% of gross domestic product, Deloitte said in a report. That’s down from the government’s October forecast of A$36.9 billion, or 1.5%, of GDP.

“The temporary surge in tax receipts — to the tune of A$83 billion in additional revenue over the next four years — is delivering an astonishing turnaround in the government’s fiscal position,” said Stephen Smith, lead report author.

Yet the improvement illustrates the longer-term problem with the government’s books as even in an optimal environment of high export prices and the jobless rate hovering around a 50-year low the budget is in deficit.

One driver of the structural deficit is an over-reliance on income tax while large areas of wealth are barely touched by taxation; another is soaring costs for health and disability care that would stretch any reasonable budget.

“All Australians should be on notice that taxes will likely need to be higher in the future,” said Smith, a Deloitte partner. “The fact that the budget is in a healthier position right now provides the perfect opportunity for reform.”

However, the government has been reluctant to respond to economists’ calls for an overhaul of revenue raising, apart from small changes to curb multinational tax avoidance and pension tax breaks for high earners.

Treasurer Jim Chalmers, who will hand down his second budget on Tuesday, is currently examining potential changes to a petroleum resource rent tax to try to generate more tax revenue from the energy industry.