Markets Overview
- ASX SPI 200 futures up 1.0% to 7,245.00
- Dow Average up 1.0% to 33,093.34
- Aussie up 0.3% to 0.6526 per US$
- U.S. 10-year yield fell 2.0bps to 3.7983%
- Australia 3-year bond yield rose 2.8 bps to 3.44%
- Australia 10-year bond yield rose 2.9 bps to 3.73%
- Gold spot up 0.3% to $1,946.46
- Brent futures up 0.9% to $76.95/bbl
Economic Events
US stock futures advanced as appetite for risk taking returned to global markets following the deal between President Joe Biden and House Speaker Kevin McCarthy on the US debt ceiling.
Contracts for the S&P 500 climbed 0.5% and those for the Nasdaq 100 gained 0.6% as trading opened in Asia on Monday. Futures for benchmarks in Japan and Australia pointed higher while a gauge of US-listed Chinese stocks rallied Friday in a positive sign for Hong Kong traders there returning from a long weekend.
Moves in currency markets were muted, with the dollar trading in tight ranges of about 0.1% versus most of its major counterparts.
Investors had become increasingly confident on Friday that an agreement would be struck in Washington, supporting gains in the US equity benchmarks. Equities there also continued to be led higher by tech stocks and the frenzy surrounding artificial intelligence.
Investors Friday were also demanding less of a premium to hold US Treasury bills seen most at risk of nonpayment if a deal isn’t reached in time.
Yet the agreement struck by Biden and McCarthy over the weekend also needs to be passed by Congress, with the clock ticking down on June 5, when Treasury Secretary Janet Yellen has said cash will run out. There is plenty in the deal that Democrats and Republicans won’t like.
The bond market also has much to contend with. The Treasury will need to replenish is coffers by selling more debt and the passing of the deal puts focus back on the Federal Reserve’s fight to tame inflation.
The rate-sensitive two-year Treasury drifted Friday as traders considered how a debt agreement could play into the Fed’s path forward on interest rates. The two-year yield hovered around 4.65% after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target. The personal consumption expenditures price index, one of the Fed’s preferred inflation gauges, rose by a faster-than-expected 0.4% in April.
In stocks Friday, the S&P 500 rose 1.3% and the tech-heavy Nasdaq 100 added 2.6% as Marvell Technology Inc. said 2024 revenues would “at least double” from a year ago on a surge in demand from AI, echoing sentiments from rival chipmaker Nvidia Corp. earlier in the week.
Elsewhere, there will be heightened interest in emerging markets after Turkish President Recep Tayyip Erdogan sealed an election victory, raising the prospect of more friction with Western governments and more uncertainty for investors.
Other News
Australia’s barley sector may be the next beneficiary of the thawing relationship with Beijing, Trade Minister Don Farrell said following another meeting with his Chinese counterpart.
Farrell, speaking in Detroit after his third meeting with Chinese Commerce Minister Wang Wentao in the past two months, said he expects China will remove its 80% tariffs on Australian barley exports within the next few weeks. Australia recently suspended its World Trade Organization case to give Beijing an opportunity to review the matter.
“I intend to persist and persevere with all of those trade impediments, with a view to resolving them as quickly as we possibly can,” Farrell said in an interview Saturday. “We’re making progress, but the job is not finished,” he said, adding he expected China to remove the barley tariffs after Beijing’s review “if it’s done properly.”
The comments are the latest sign ties between Australia and its top trading partner are on the mend in the wake of the election of Prime Minister Anthony Albanese’s Labor government a year ago, with timber exports to China recently following the resumption of coal shipments earlier in 2023. Wine, crayfish, hay and to some extent meat, where not all butchers have received approval from Beijing, remain outstanding issues, Farrell said.
The lifting of timber-export restrictions came after Farrell visited Beijing and held talks with Wang earlier this month. The ministerial-level discussions are a breakthrough after the Chinese government took punitive actions on a range of goods in 2020, furious at a call by then-Prime Minister Scott Morrison for an international investigation into the origins of Covid-19 in Wuhan.
Even as Canberra aims to negotiate an end to sanctions on billions of dollars worth of its agricultural exports, Beijing is pushing for better access for investment and Australia’s support for China joining the 11-country Comprehensive and Progressive Trans-Pacific Partnership. That’s a sensitive issue given that Canberra is closely tied to the US on security and relations between Beijing and Washington are extremely strained.
Farrell participated in a meeting of the trade bloc in Detroit and said that his counterparts are focused on finalizing the incorporation of the UK, the first country to join since 2018. After that, members will talk about the additional nations that have asked to join, Farrell said, pointing out that he had told Wang such decisions must be made by consensus.
“It’s just not a case of, you know, what Australia might or might not want to do,” Farrell said. “It’s a case of what the rest of the countries wish to do.”
Even as it seeks to mend trade ties with China, Australia is pushing to diversify away from the nation, which accounts for about 30% of its total trade — more than the US, Japan, South Korea, India the UK and Germany combined, Farrell said.
That push includes new free-trade agreements with India and the UK. Farrell was in Michigan for talks on the US-led Indo-Pacific Economic Framework, and this upcoming week will be in Brussels in a bid to finalize a deal with the European Union.
(Bloomberg)
