Markets Overview

  • ASX SPI 200 futures down 1.2% to 7,032.00
  • Dow Average down 1.1% to 33,922.26
  • Aussie down 0.5% to 0.6625 per US$
  • U.S. 10-year yield rose 10.0bps to 4.0311%
  • Australia 3-year bond yield rose 13 bps to 4.11%
  • Australia 10-year bond yield rose 12 bps to 4.13%
  • Gold spot down 0.2% to $1,911.04
  • Brent futures little changed at $76.58/bbl

Economic Events

  • 16:30: (AU) June Foreign Reserves, prior A$88.9b

US stocks fell for the second day straight while Treasury yields spiked after surprisingly strong private hiring data. Traders are next to turning to Friday payroll numbers to gauge the Federal Reserve’s next move.

The S&P 500 and Nasdaq 100 benchmarks notched losses on Thursday after ADP Research Institute numbers showed US companies added the most jobs in over a year in June, underscoring the ongoing strength of the labor market. Swap contracts linked to future policy decisions almost fully priced in a quarter-point increase by July 26 and showed a growing likelihood of an additional hike by year end.

In afterhours trading, Levi Strauss & Co. dropped more than 7% as the denim retailer slashed its outlook for the year while Costco Wholesale Corp. dipped around 1% after monthly sales missed estimates.

Treasury yields rose across the curve after the ADP report and data showing the service sector expanded in June at the fastest pace in four months. The policy sensitive two-year rate ended the day at 4.99% after touching a 16-year high while the yield on the 10-year rose to 4.03%.

Private payrolls increased 497,000, more than double the median estimate in a Bloomberg survey of economists. Separate data from Challenger, Gray & Christmas Inc. showed the pace of job cuts by US employers slowed in June.

The numbers stunned Wall Street.

“The strength of the US labor market is almost unbelievable and this should further push out any concept of a possible recession in the US,” said Scott Ladner, chief investment officer at Horizon Investments. “But, it should also push out of the market any hopes of a Fed rate cut during 2023.”

Friday’s nonfarm payrolls and unemployment reports may provide further clues on the Fed’s policy path. Economists surveyed by Bloomberg are expecting figures to moderate, though it remains to be seen if that will be enough to steer the central bank away from another rate increase. Earlier this week, minutes from the Fed’s June meeting showed division among policymakers over the decision to pause rate hikes, with the voting members on track to take rates higher later this month.

Other News

Last month was the warmest June of the past three decades globally, with several places in western Europe hitting all-time records for the month, according to a report by Europe’s earth observation agency Copernicus.

Ocean temperatures also rose to their highest levels since at least 1991, making June the third consecutive month a new record has been created. An extreme marine heat wave over the North Atlantic ocean that started in May took sea surface temperatures to unprecedented highs, compared to the average between 1991 and 2020. Copernicus’s dataset tracks changes as far back as 1991.

“These exceptional conditions in the north Atlantic highlight the complexity of the Earth system,” Carlo Buontempo, director of the Copernicus Climate Change Service said in a statement Thursday. They “remind us of the importance of monitoring the global climate in near real time.”

Air temperatures in June were 0.5C above the average globally between 1991 and 2020, the agency said. Heat waves impacted several western European countries, with the UK posting its hottest June since at least 1884. Average mean temperatures in the country were 0.9C above the previous record, the Met Office said earlier this week.

The rapidly warming planet has lead to unusual spikes in air and sea temperatures that can wreak havoc on global weather, food supply chains and economies. The first El Niño in almost four years is also developing. It is a phenomenon which originates when the eastern Pacific Ocean warms and has historically led to higher inflation and depressed growth in climate-vulnerable nations. In June, El Niño continued to strengthen over the tropical eastern Pacific, Copernicus confirmed.

While much of North America was drier than average, conditions that favor and sustain severe wildfires were seen in, Russia, the Horn of Africa, most of southern Africa, South America, and regions of Australia, the Earth observatory agency warned.

The area covered by sea ice in Antarctica reached its lowest level for any June since satellite observations began in late 1970s and was 17% below the historical average. In the Arctic, sea ice extent was slightly below the historical average, but above June levels for the past eight years.

“The background warming of the Earth’s atmosphere due to human induced climate change has driven up the possibility of reaching record high temperatures,” Met Office chief meteorologist Paul Davies said in a July 3 statement.

Parts of Canada, the US, Mexico, Asia and eastern Australia were also significantly warmer than average, while the western parts of the US,  Russia and Australia were cooler than normal, Copernicus reported.

Rainfall during the month was higher than average over most of southern Europe and north-western Russia, while floods were reported in Turkey, Kosovo and Romania.