Markets Overview

  • ASX SPI 200 futures up 0.3% to 7,376.00
  • Dow Average up 0.5% to 35,459.29
  • Aussie down 0.8% to 0.6657 per US$
  • U.S. 10-year yield fell 5.0bps to 3.9507%
  • Australia 3-year bond yield rose 7.9 bps to 3.89%
  • Australia 10-year bond yield rose 14 bps to 4.07%
  • Gold spot up 0.7% to $1,959.49
  • Brent futures up 0.9% to $84.99/bbl

Economic Events

  • 11:00: (AU) July Melbourne Institute Inflation, prior 0.1%
  • 11:00: (AU) July Melbourne Institute Inflation, prior 5.7%
  • 11:30: (AU) June Private Sector Credit MoM, est. 0.4%, prior 0.4%
  • 11:30: (AU) June Private Sector Credit YoY, prior 6.2%

Asian equity futures point to gains across the region when markets open Monday following a rally on Wall Street as investors shook off worries over the Bank of Japan’s policy tweak and embraced the latest US economic data.

Contracts for Japan and Hong Kong rose at least 1% while those for Australia edged up 0.3%. Megacaps led gains in US shares on Friday, with the Nasdaq 100 climbing almost 2% and the S&P 500 advancing 1%. Meta Platforms Inc. and Tesla Inc. each climbed more than 4%, while Intel Corp. rallied about 6.5% on a bullish sales forecast. Bond yields fell.

Key gauges of inflation showed further easing while Americans grew more optimistic about the economy, with investors wagering that its neither running too hot nor too cold.

The dollar traded slightly lower early Monday against most Group-of-10 peers. The yen rose marginally after snapping a four-day rally on Friday, when the BOJ adjusted policy to give bond yields more room to rise.

Currency and bond markets face the risk of continued volatility as investors weigh whether rate hikes from the Federal Reserve and European Central Bank last week mark the end of their tightening cycles.

The Australian dollar and British pound are also in the spotlight with their central banks slated to meet on Tuesday and Thursday.

Other News

Australia’s policy tightening campaign is approaching its final stages, with money markets and economists divided over the timing of the Reserve Bank’s likely last interest-rate increase in this cycle.

Traders expect the RBA will hold its cash rate at 4.1% for a second straight meeting on Tuesday after quarterly inflation eased and retail sales surprisingly fell. In contrast, a majority of economists expect a 25-basis—point hike to ensure a tight labor market doesn’t fuel wages while price gains hover at twice the central bank’s target levels.

Australia’s policymakers convene after the Federal Reserve and the European Central Bank increased rates last week, while nearby New Zealand has already paused its tightening cycle. The challenge for the RBA is finding the right balance — not stop too early and give prices a chance to revive and not go too hard and bring about a recession.

This meeting “will be another line ball call,” said Belinda Allen, a senior economist at Commonwealth Bank of Australia, who sees a quarter-point hike as the path of least regret. “This should provide an offset to any lingering risks in the inflation and wages outlook.”

The US appears to be on track for a soft landing after its economy shone in the latest report card despite the Fed’s most aggressive tightening campaign in a generation. Outgoing Governor Philip Lowe maintains the RBA is still on a narrow path to a similar outcome.

Some economists expect Lowe to raise rates during his final two meetings at the helm before departing in mid-September. That would provide incoming Governor Michele Bullock with a clean slate as she confronts the task of implementing the 51 recommendations from a review of the central bank.

Also, unemployment at 3.5% is still about one percentage point away from the level that the RBA had said will enable inflation to return to the top of its 2%-3% target in mid-2025.

Those predicting a pause argue that monetary policy is already restrictive, with retail sales data for June highlighting how cost of living pressures weigh on private consumption that accounts for two-thirds of Australia’s economic output. How consumers respond to higher borrowing costs are important considerations for the RBA.

“For now, it seems to us that stepping back, waiting a couple of quarters and seeing how things pan out is probably the most appropriate course of action,” said Adam Boyton, head of Australian Economics at ANZ Holdings Ltd. Weakness in job vacancies and business conditions suggest that tightening is taking hold, he said.

Also, closely-watched by Lowe and his colleagues is the impact of higher mortgage repayments on households.

Latest data from Equifax showed a rising trend of missed mortgage payments in yet another sign that rate increases are taking a toll on home owners. The number of accounts in 1-29 days of arrears rose by 36% in the second quarter from a year ago while those in 30-89 days of arrears increased 33%.

“We have consistently argued that policy rates need to be a little more restrictive,” said Su-Lin Ong, chief economist at the Royal Bank of Canada, who pushed back on Friday her 25-basis-point rate hike forecast to the fourth quarter following last week’s inflation and retail data.

“But, we have also highlighted the RBA’s dovish tendencies underpinned by a desire to maintain the labor market gains of recent years and its willingness to tolerate a slower glide back to within target inflation,” she said.