Markets Overview

  • ASX SPI 200 futures up 0.4% to 7,166.00
  • Dow Average up 1.3% to 34,408.06
  • Aussie up 1.3% to 0.6883 per US$
  • U.S. 10-year yield fell 7.1bps to 3.7165%
  • Australia 3-year bond yield rose 9.2 bps to 4.01%
  • Australia 10-year bond yield rose 2.6 bps to 4.00%
  • Gold spot up 0.8% to $1,957.95
  • Brent futures up 3.3% to $75.61/bbl

Economic Events

The stock rally driven by the exuberance surrounding artificial intelligence is widening beyond the tech industry, defying naysayers and raising concern about an overbought market.

Bets that the Federal Reserve will end its tightening cycle sooner rather than later to prevent a recession added fuel to the equity advance, with the S&P 500 topping 4,400 and rising for a sixth straight day. All of its major groups gained. The Dow Jones Industrial Average extended its surge from a September low to nearly 20%, while the Nasdaq 100 hit the highest since March 2022.

Wall Street’s fervor will face a big test on Friday with the expiration of a massive amount of options contracts tied to stocks and indexes. The event, known as OpEx, typically obliges traders to either roll over existing positions or start new ones. That usually involves portfolio adjustments that lead to a spike in volume and sudden price swings.

Bonds climbed Thursday, with the yield on 10-year Treasuries declining seven basis points to 3.71%. The dollar slumped the most since February.

The Fed is now in a “data-dependent” mode before it delivers what may be just one final increase in US borrowing costs next month, former Vice President Richard Clarida said.

“It was what I would call an awkward but hawkish pause,” Clarida, who is now a global economic advisor at Pacific Investment Management Co. told Bloomberg Television on Thursday.

The US economy is holding up, but losing steam.

While an advance in retail sales last month exceeded nearly every estimate, the report also showed consumer demand has moderated from the past year. Separate data showed factory production remained sluggish and applications for unemployment benefits held at the highest level since late 2021.

Other News

Australian employers are offering signing bonuses to entice workers, with companies like Wesfarmers Ltd. and Ramsay Health Care Ltd. reporting up to 8% in wage growth, highlighting a tight labor market and complicating the Reserve Bank’s inflation fight.

A popular bakery in the southeastern state of Victoria is prepared to give bonuses of up to A$700 ($477) to attract staff while public hospitals in the same state are offering A$5,000 to fresh nursing and midwifery graduates in addition to their salary.

“In the current market, job seekers are still spoiled for choice,” Callam Pickering, an economist at global jobs site Indeed Inc., said after Thursday’s data showed a surprise fall in unemployment. “Australia’s job vacancy rate is 2.8%, which is still around twice as high as was considered normal before the pandemic.”

Labor demand persists even after 12 interest-rate increases in the past year. That helps explain financial market pricing for at least two more hikes to take the cash rate to 4.6% from 4.1% now.

In New South Wales, restaurants such as Ripples and Cafe Bondi, has advertised a A$5,000 sign-on bonus for staff who can join “ASAP.”

Yet it isn’t all one-way, with a survey this week showing business confidence slipped into negative territory. Rebekah Mirium, director of events at Grove Bar in Sydney, said her firm has frozen hiring.

“We don’t have the ability to give any jobs,” Mirium said, referring to the soaring cost of doing business. “We’re making less revenue every day than before. We’re seeing a slump in foot traffic, in bums on seats, in patrons coming out and spending money.”

The RBA has raised rates by 4 percentage points since May 2022, its most aggressive tightening campaign in more than 30 years. Yet the jobless rate has remained in a 3.4%-3.7% range over the period and wage expectations have accelerated.

The rising pay demands are a key worry for RBA Governor Philip Lowe, who wants to avoid the type of price-wage spiral that policymakers in the US and UK are grappling with.

Inflation in Australia is hovering around 7% and the RBA only forecasts it to return to the top of its 2-3% target in two years’ time. Lowe recently highlighted upside risks to prices from services such as dining and healthcare.

“We have been prepared to be patient in getting inflation back to target,” the governor said last week. “But our patience has a limit and the risks are testing that limit.”