Markets Overview

  • ASX SPI 200 futures up 0.9% to 7,284.00
  • Dow Average up 1.7% to 33,674.38
  • Aussie up 0.8% to 0.6747 per US$
  • U.S. 10-year yield rose 5.9bps to 3.4370%
  • Australia 3-year bond yield fell 1.4 bps to 2.96%
  • Australia 10-year bond yield rose 1.5 bps to 3.32%
  • Gold spot down 1.6% to $2,016.79
  • Brent futures up 3.9% to $75.30/bbl

Economic Events

  • 11:30: (AU) April NAB Business Confidence, prior -1
  • 11:30: (AU) April NAB Business Conditions, prior 16
  • 11:30: (AU) March Private Sector Houses MoM, prior 11.3%
  • 11:30: (AU) March Building Approvals MoM, est. 3.0%, prior 4.0%

Asian shares were poised to climb Monday after a chaotic week for financial markets ended Friday with a rebound in US regional banks and a rally in risk assets.

Solid jobs data has tempered fears of a US recession, improving sentiment that saw Treasuries fall and Wall Street’s favorite volatility gauge, the VIX, snap a four-day surge.

Equity futures pointed to gains of slightly less than 1% in Hong Kong and Australia. Contracts for Japan were marginally lower as traders there return from national holidays.

The advance on Wall Street halted the S&P 500’s longest losing streak since February, with the gauge climbing 1.9%. The KBW Bank Index of financial heavyweights rebounded from its lowest since September 2020.

The Nasdaq 100 rose 2.1%, with strong earnings at Apple Inc. helping lift the megacap tech space as the world’s most-valuable company climbed almost 5%.

The US jobs data showed hiring and worker pay gains accelerated in April in signs of labor-market resilience and inflationary pressures in the face of headwinds.

The strong figures also increase chances the Federal Reserve will hold rates higher for longer, and potentially keep the door open to an 11th straight hike in June.

Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September — followed by at least two quarter-point cuts by year-end.

Despite Friday’s stock rebound, investors still have much to worry about. The rout in US bank shares has the S&P 500 financials index on the verge of falling back below its 2007 peak.

Investors will be awaiting the release this week of the core consumer price index, which excludes food and energy and is closely watched by the Fed. It is projected to show a 5.5% increase in April from a year ago.

Other News

Australia may record its first budget surplus in 15 years, bolstering the center-left government’s economic credentials as Treasurer Jim Chalmers moves to reinforce the central bank’s efforts to peg back inflation.

Economists reckon Tuesday’s fiscal blueprint will show a A$5.35 billion ($3.6 billion) shortfall, or 0.25% of GDP, in the 12 months to June 30. Local media report the government will deliver a slim surplus amid windfall revenue from high export prices and bigger income tax-take due to low unemployment.

The treasurer has refused to comment on whether the books are back in the black, saying all will be revealed at 7:30 pm Sydney time tomorrow.

Typically, a budget surplus in Australia is a political victory for the government as it indicates strong economic oversight — even if driven by external forces. But now, with inflation running at 7% and interest rates rising at the fastest pace in 30 years, bringing fiscal policy in line with monetary settings is crucial to cooling prices and easing pressure on a struggling electorate.

If Chalmers successfully charts a course back to the black, it will be a rapid turnaround from the height of the pandemic when Australia ran a budget deficit of A$134.2 billion, or 6.5% of gross domestic product. The interest costs on the enormous debt racked up have also soared as a result of rate rises.

A surplus in the current fiscal year is likely to be a one-off with commodity prices falling back amid a slowing global economy and higher interest rates expected to push up local unemployment. In addition, an aging population and rising demand for services like health will lift costs.

A Bloomberg survey of 17 economists showed the median estimate for the 12 months through June 2024 is a budget deficit of A$22.25 billion, or 0.8% of GDP, swelling to A$35 billion, or 1.5% of GDP, the following year.

Still, a surplus this financial year is a boon for Australia, one of the few with a coveted AAA credit rating from all three major agencies.

The US budget deficit is currently 6.9% of GDP while fiscally cautious Germany’s is at 2.6%, according to data compiled by Bloomberg. In contrast, the Irish government predicted surging corporate-tax income will help widen its budget surplus to €10 billion ($11 billion) this year.

Many economists and former senior officials have urged the government to tackle Australia’s dated tax system. But the politics of tax reform are perilous.

There have been suggestions to incorporate into the budget proposed changes to the Petroleum Resource Rent Tax to increase revenue from the profitable energy industry. Yet again, the treasurer has given little away.

What Chalmers had been vocal about is providing support for Australians who are struggling to make ends meet amid elevated inflation and high borrowing costs. He has also indicated possible higher unemployment benefits for people over age 55, a boost to the allowance for single parents, energy cost relief and more support for childcare payments.