Markets Overview

  • ASX SPI 200 futures up 0.3% to 7,051.00
  • Dow Average little changed at 33,714.71
  • Aussie little changed at 0.6675 per US$
  • U.S. 10-year yield fell 1.3bps to 3.7192%
  • Australia 3-year bond yield fell 7.6 bps to 3.95%
  • Australia 10-year bond yield fell 3.9 bps to 3.95%
  • Gold spot up 0.1% to $1,923.14
  • Brent futures up 0.6% to $74.28/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$50 Million 1.25% 2040 Linkers
  • 11:00: (AU) Australia to Sell A$100 Million 0.75% 2027 Linkers

US stocks fell while government bonds advanced as traders unwound bets the Federal Reserve will cut interest rates this year.

The Nasdaq 100 dropped 1.4% Monday, sliding for a second day after suffering its worst week since March.

Traders are finally relenting on their bets that the central bank will cut rates this year after Fed Chair Jerome Powell last week warned the US may need one or two more rate increases in 2023. Investors have been growing more anxious that central banks determined to extinguish inflation will keep pushing rates higher and risk breaking fragile economies.

Amid a global bond rally, early gains in Treasuries faded with the yield on the policy-sensitive two-year at 4.74% and the 10-year bond at 3.72%.

Oil advanced though it lingered below $70 a barrel, with traders alert to the risk that any prolonged turmoil in Russia could reverberate through global crude markets. The country’s war in Ukraine has already upended trade flows, with major consumers in Asia including China boosting imports of Russian energy.

Other News

Australian Treasurer Jim Chalmers’ delay in announcing the next Reserve Bank governor may limit his options to local candidates and could even see incumbent Philip Lowe receive an extension, former senior central bank officials, lawmakers and economists say.

Lowe, whose seven-year term expires Sept. 17, has faced criticism over his policy guidance and communications, prompting many observers to conclude he won’t be reappointed. Chalmers last week pushed back the decision to July 31 at the latest, all-but ruling out an offshore candidate given the tight timeframe.

As a result, Chalmers is likely to select from a small coterie of well-qualified local candidates, including Department of Finance Secretary Jenny Wilkinson, Treasury Secretary Steven Kennedy and Deputy Governor Michele Bullock. Even as Chalmers is said to have a shortlist, no single name has emerged as an overwhelming favorite.

“My suspicion is that Chalmers is probably still searching,” said Jonathan Kearns, who until March headed up domestic markets at the central bank. “It’s disruptive for the RBA if Phil doesn’t yet know whether or not he’ll stay in his role after September.”

RBC Chief Economist for Australia Su-Lin Ong echoed that view, saying “the process to find the governor’s replacement is not easy. There’s no obvious person because if there was one, it would probably be announced.”

Chalmers initially said he would make a decision around midyear — building expectations for a June announcement — and on Thursday shifted that to July.

One solution with limited disruption would be to name Kennedy, who is already on the RBA’s board, as governor. That would open the top job at Treasury to Wilkinson, who has often been discussed as the next treasury secretary.

Whoever takes the helm at the RBA will confront stubborn inflation and oversee the biggest reform of the central bank in decades following an independent review. That will be a significant task, particularly if the new governor also has to keep raising rates and parry the accompanying criticism.

With Chalmers and Lowe both traveling to India from July 14-18 for the G-20 Finance Ministers and Central Bank Governors meeting, an announcement on the next RBA chief is only likely to come after that.

“If the treasurer can’t find an attractive candidate willing to do the job, then Philip Lowe becomes a more likely alternative,” said Peter Tulip, chief economist at the Centre for Independent Studies and a former RBA official. “He wouldn’t be their first choice though.”

Lowe has expressed a desire to remain in the role. His two predecessors both received three-year extensions to serve 10 years as governor.