Markets Overview

  • ASX SPI 200 futures down 0.8% to 7,239.00
  • Dow Average down 1.0% to 35,282.52
  • Aussie down 1.1% to 0.6538 per US$
  • U.S. 10-year yield rose 5.8bps to 4.0816%
  • Australia 3-year bond yield rose 0.9 bps to 3.76%
  • Australia 10-year bond yield rose 5 bps to 4.02%
  • Gold spot down 0.5% to $1,934.76
  • Brent futures down 1.7% to $83.45/bbl

Economic Events

  • 09:00: (AU) July Judo Bank Australia PMI Servic, prior 48.0
  • 09:00: (AU) July Judo Bank Australia PMI Compos, prior 48.3
  • 10:30: (AU) Australia to Sell A$1 Billion 98-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 112-Day Bills
  • 11:30: (AU) 2Q Retail Sales Ex Inflation QoQ, est. -0.5%, prior -0.6%
  • 11:30: (AU) June Exports MoM, prior 4%
  • 11:30: (AU) June Imports MoM, prior 2%
  • 11:30: (AU) June International Trade Balance, est. A$10.8b, prior A$11.8b

This year’s $6.5 trillion rally in stocks hit a wall, following hot labor-market data and a ramp-up in Treasury issuance just a day after a US credit downgrade by Fitch Ratings.

Equities fell across the board, with the S&P 500 notching its worst day since April. The tech-heavy Nasdaq 100 dropped 2% after a surge fueled by the artificial-intelligence frenzy. In late trading, Qualcomm Inc. slid on a tepid revenue forecast. Wall Street’s “fear gauge,” the VIX, climbed the most in almost five months. Treasury 10-year yields hit the highest since November, while the dollar rose.

To Dan Wantrobski at Janney Montgomery Scott, the stock market is seeing a “high-level consolidation” amid warnings about overbought conditions, bullish sentiment and generally thinner breadth readings. More volatility is in the cards over the next several months, with a number of potential catalysts such as Federal Reserve policy, rate volatility and tightening liquidity, he added.

“Wall Street can’t ignore what is happening with fixed income as Treasury yields surge,” said Ed Moya, senior market analyst for the Americas at Oanda. “Equity traders are using this surge in yields and some nervousness ahead of Apple and Amazon’s earnings as an opportunity to lock in some profits.”

As bonds retreated, Wall Street had something else to worry about — a steeper yield curve — with rates on longer-term bonds rising faster than those on shorter-term maturities.

Whenever the US curve has steepened in a significant way from an inverted position over the past 50 years, it has been followed by a meaningful drop in the equity market, according to Matt Maley at Miller Tabak.

“With this in mind, we’re not worried about the downgrade impact,” Maley noted. “There are some developments to be concerned about, including the recent rise in Treasury yields. The steepening of the yield curve — from an inverted position — is bearish, not bullish for the stock market.”

The steepening of the yield curve extended a trend since the Bank of Japan surprised markets last week with a policy tweak. At 4.88%, two-year yields are 80 basis points higher than those on the 10-year note. That’s compared to a gap of 102 basis points two weeks ago.

Other News

Australia should consider extending a ban on TikTok from government devises to include WeChat, a panel of lawmakers said, in the latest move from Canberra to crack down on potential influence linked to Beijing.

A Senate committee urged sweeping changes to Australia’s treatment of major tech firms in its final report released Tuesday. Among proposals are stricter transparency requirements on ownership and content moderation procedures of social media platforms, and potential fines or even bans if they fail to comply.

Authoritarian states are using Western apps that are banned in their own countries to “undermine us and to shape our decision making in their favor,” according to Senator James Paterson, chairman of the Select Committee on Foreign Interference through Social Media.

“We’ve got a lot of work to do because there’s been enormous amounts of foreign interference on those platforms,” he said in an interview in Canberra.

Australian Home Affairs Minister Clare O’Neil, in a statement, thanked the committee for its work and said she would consider its recommendations.

Australia has been in the vanguard of Western nations confronting security concerns linked to China and technology, becoming the first country to ban Huawei Technologies Co. Ltd. from its 5G network in 2018. It announced in April that ByteDance Ltd.’s TikTok would be banned from government-issued devices following advice from intelligence and security agencies.

Almost every social media giant appeared before the senate committee apart from WeChat owner Tencent, which submitted written answers. A spokesperson said Tencent was reviewing the committee’s report in detail and was committed to protecting user privacy and safety.

“While we disagree with the depiction of WeChat in the report, we will continue to work with stakeholders in Australia to address any further concerns and ensure Australians can continue connecting with others through WeChat,” the spokesperson said in a statement.

Paterson accused Tencent of showing “contempt” for the Australian Parliament by failing to appear before the committee.

Chinese Foreign Ministry spokeswoman Mao Ning said at her regular briefing on Tuesday that Paterson “consistently held biases against China” and his hearings had predominantly targeted Chinese companies.