Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,167.00
  • Dow Average up 0.8% to 34,122.42
  • Aussie up 0.3% to 0.6617 per US$
  • U.S. 10-year yield rose 13.2bps to 3.8383%
  • Australia 3-year bond yield rose 6 bps to 3.93%
  • Australia 10-year bond yield rose 3.1 bps to 3.90%
  • Gold spot little changed at $1,908.15
  • Brent futures up 0.4% to $74.33/bbl

Economic Events

  • 11:30: (AU) May Private Sector Credit MoM, est. 0.4%, prior 0.6%
  • 11:30: (AU) May Private Sector Credit YoY, prior 6.6%

Wall Street got more signs the Federal Reserve’s war against inflation isn’t breaking the economy — or at least not yet — with traders sending Treasury yields soaring amid bets on further tightening.

Bonds sold off across the curve, with two-year yields jumping 15 basis points to 4.86%. Swap markets now indicate a nearly 50% chance of a second Fed hike by year-end. The dollar rose. The S&P 500 posted a mild advance, with equities facing a lot of instability as traders adjusted their positions at the end of the quarter.

Banks led gains as the biggest lenders passed the Fed’s stress test, clearing the way for payouts. Wells Fargo & Co. and JPMorgan Chase & Co. rallied at least 3.5%. The Nasdaq 100 underperformed after soaring over 35% this year, buoyed by the artificial-intelligence hype. The Russell 2000 Index of small caps climbed 1.2%. In late trading, Nike Inc. whipsawed after mixed results.

Thursday’s readings on jobless claims and the gross domestic product showed the US economy is in better shape than many had envisioned at the start of 2023. While key gauges of inflation closely watched by the Fed have been revised down slightly, they still remain well above the central bank’s 2% target.

Other News

The European Union has failed to offer Australia satisfactory terms to seal a free-trade accord, Trade Minister Don Farrell said, as small but important sticking points threaten to derail plans to sign by the end of August.

EU Trade Commissioner Valdis Dombrovskis said Wednesday evening in Brussels that it’s possible the agreement could be signed at a NATO summit in Lithuania in mid-July, the Australian Financial Review reported. The five-year negotiations between the bloc and Canberra are in their “end-game,” he told reporters, adding there is still “certain ground to be covered.”

Australia remains dissatisfied with the level of market access being offered for agricultural products and isn’t prepared to sign a deal without “meaningful commercial market access,” Farrell said Thursday in a statement. “At this stage we haven’t had a good enough offer from the Europeans,” he said.

Behind the scenes, European negotiators believe the FTA could be agreed in coming weeks if differences over the last major sticking point — market access for Australian beef — are bridged, according to a person familiar with the negotiations.

But Australia is signaling it’s unhappy with the access on offer across a range of agricultural products, including beef, sugar and mutton. It needs to decide then whether to take what’s on the table or walk away.

Australia is believed to want a deal similar to the FTA struck between the EU and Canada in 2014.

There are also disagreements over the EU’s insistence on geographical indication protection for hundreds of products that could affect the branding of Australia’s exports such as prosecco and feta. EU negotiators consider these to be non-negotiables while Farrell has previously said it was an “emotional issue” for Australian farmers.

Resolving these are likely to be easier if the key issue of beef is resolved.

Prime Minister Anthony Albanese will attend the NATO summit in Vilnius starting July 11, while Farrell may return to the EU for further negotiations in early July, both potential opportunities to further or finalize the trade agreement.