Markets Overview

  • ASX SPI 200 futures up 0.5% to 7,096.00
  • Dow Average up 0.9% to 34,261.42
  • Aussie up 0.1% to 0.6685 per US$
  • U.S. 10-year yield fell 2.3bps to 3.9720%
  • Australia 3-year bond yield fell 9.8 bps to 4.11%
  • Australia 10-year bond yield fell 10 bps to 4.18%
  • Gold spot up 0.4% to $1,932.50
  • Brent futures up 2.1% to $79.35/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$700 Million 2.25% 2028 Bonds
  • 13:04: (AU) RBA’s Lowe-Speech

Asian stock futures made small advances as global investors await a US inflation report later Wednesday that will help shape the outlook for interest rates in the world’s biggest economy.

Contracts for benchmarks in Japan and Australia rose 0.3% and 0.5%, respectively, suggesting a mildly positive tone as markets in the region open. Futures for Hong Kong climbed 0.6% and an index of US-listed Chinese shares advanced 1.6% as traders warmed to government measures to bolster the nation’s struggling property sector.

In the run-up to the consumer price index release, the S&P 500 extended its advance beyond the 4,400 mark while the Dow Jones Industrial Average added almost 1%. Energy producers led gains as West Texas Intermediate oil topped its key 100-day moving average. Activision Blizzard Inc. surged 10% as Microsoft Corp. won a US court’s OK to proceed with its $69 billion takeover deal.

Forecasters surveyed by Bloomberg expect the year-over-year rate of increase in core inflation moderating to 5%, according to the median estimate. But the slowdown will possibly not be enough to prevent additional policy tightening, with Federal Reserve officials widely expected to resume interest-rate increases later this month.

A survey conducted by 22V Research shows that 65% of respondents believe the core CPI — which excludes volatile food and energy prices — will be lower than consensus.

“If economic data keeps tilting towards a soft landing, the markets are increasingly likely to price in that outcome, with investors reallocating to risk assets,” said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management.

A gauge of the dollar slid Tuesday while two-year Treasury yields rose and rates on 10-year bonds fell. Major currencies were mostly steady early on Wednesday, with the yen little changed near 140 after advancing to its strongest level against the dollar since mid-June.

The New Zealand dollar will also be in focus during the Asian session, with the nation’s central bank expected to leave interest rates unchanged. That would end a streak of 12 consecutive hikes as the economy cools and inflation starts to wane.

Meanwhile in the US, after surging by a four-decade high in June 2022, CPI has pulled back steadily in the face of the Fed’s monetary policy onslaught. That slowdown has given support to the stock-market’s surge this year, and bulls have strong precedent for their enthusiasm.

Since the 1950s, inflation peaks have almost always been followed by double-digit equity gains, according to data compiled by the Leuthold Group. The S&P 500 has gained more than 20% since it bottomed out in October, placing it up about 15% since the peak CPI data was released last year.

Elsewhere, oil steadied Wednesday after rising amid indications that Russian crude production is dropping, signaling the market’s supply glut may be coming to an end. Adding to bullish sentiment is news that China will take more steps to revive its economy.

Other News

The European Union and Australia deadlocked in negotiations aimed at wrapping up a free-trade deal this week, putting an accord at risk as the partners struggle to consolidate critical supply chains among allies.

Sticking points in the negotiations include access for some food products, in particular Australian beef, according to people familiar with the discussions.

The two sides were aiming to conclude talks this week ahead of the NATO summit in Vilnius, since Australian Prime Minister Anthony Albanese is in Europe to attend the leaders’ gathering. The European Commission, the EU’s executive arm, wanted to wrap up talks before the summer break.

“We regret it was not possible to conclude our talks with Australia this week,” commission spokeswoman Miriam Garcia Ferrer said in a statement. “We rely on our Australian partners to work with us to get this over the line soon. Our door remains open.”

The setback comes at an awkward time as Europe works to expand its trade relations to reduce dependencies from certain countries including China and cement alliances amid Russia’s ongoing invasion of Ukraine. Talks started more than five years ago and the EU is Australia’s third-largest trading partner in goods after China and Japan. Australia is the EU’s 18th biggest.

Australian Trade Minister Don Farrell said on Monday that he was prepared to walk away from the negotiations as the Australian side flagged concerns over a lack of substantial access to the EU market for their agricultural products.

A delay risks scuppering the entire deal as the EU’s priorities will shift elsewhere after the summer break, said the people, who asked not to be identified because the talks are private.

The partners have also been discussing in parallel a raw materials agreement to increase access to Australia’s lithium deposits, one of the largest on the planet.

Trade in goods between the EU and Australia accounted for €56.4 billion ($62.1 billion) last year.