Markets Overview

  • ASX SPI 200 futures up 0.7% to 7,209.00
  • Dow Average up 0.8% to 34,852.67
  • Aussie up 0.8% to 0.6480 per US$
  • U.S. 10-year yield fell 8.2bps to 4.1197%
  • Australia 3-year bond yield fell 3.7 bps to 3.82%
  • Australia 10-year bond yield fell 4.1 bps to 4.10%
  • Gold spot up 0.9% to $1,937.51
  • Brent futures up 1.4% to $85.57/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$700 Million 2.75% 2028 Bonds
  • 11:30: (AU) July Building Approvals MoM, est. -0.5%, prior -7.7%
  • 11:30: (AU) July Private Sector Houses MoM, prior -1.3%
  • 11:30: (AU) 2Q Construction Work Done, est. 0.9%, prior 1.8%
  • 11:30: (AU) July CPI YoY, est. 5.2%, prior 5.4%

Asian equity futures pointed to gains across the region Wednesday as China’s largest banks reportedly prepare to cut interest rates and investors speculate that the Federal Reserve is nearing the end of its tightening campaign.

US shares climbed the most since June and bond yields retreated after job openings fell by more than expected, offering fresh evidence that labor demand is slowing in the world’s largest economy, taking pressure off the Fed. Separate data showed consumer confidence dropped amid souring views on jobs, higher borrowing costs and lingering inflation.

Contracts for stocks benchmarks in Japan and Australia climbed about 0.7% while those for Hong Kong advanced more than 1%, boosted by news that Chinese state-owned lenders will reduce rates on the majority of the nation’s outstanding mortgages. A gauge of US-listed Chinese companies jumped 3.7%, shaking off continued signs of financial stress in the Asian nation’s property sector.

The US economic data triggered lower wagers in swap contracts for a Fed hike in 2023, and a greater chance of a policy pivot in the first half of 2024. Traders also brought forward bets on the expected start of rate cuts to June from July of next year.

Nearly 90% of the S&P 500 companies rose as the gauge closed just shy of 4,500. A rally in megacaps like Tesla Inc. and Nvidia Corp. sent the Nasdaq 100 up more than 2%.

Treasury two-year yields sank 15 basis points to just below 4.9%. Yields on two-year and three-year government bonds in Australia and new Zealand fell five basis points Wednesday.

Major currencies steadied in Asia trading after a gauge of dollar strength slid Tuesday and the yen appreciated for the first time in four days.

Other News

Australia’s incoming central bank governor Michele Bullock said that policymakers may need to raise interest rates further, reinforcing that decisions will be taken on a month-by-month basis until 2024.

Responding to a question after she delivered a speech at the Australian National University in Canberra on Tuesday, Bullock said inflation is “still too high in Australia” and her first priority after taking the helm at the Reserve Bank is to keep bringing it down.

The RBA appears to be approaching the end of its tightening cycle after 12 hikes to bring the cash rate to 4.1%, the highest level since April 2012. Bullock’s comments are aligned with those of current Governor Philip Lowe, suggesting a degree of continuity on the monetary policy front.

“I’m reluctant to give any sort of predictions on how long interest rates might have to stay high,” Bullock added. Inflation “is coming down and we’re forecasting it to continue to come down, but it’s still too high. So first priority is still to maintain a focus on bringing inflation back down to target.”

Earlier, in her speech titled ‘Climate Change and Central Banks,” Bullock highlighted that climate-related trends could cause central banks globally to re-examine the relative merits of flexible inflation targeting.

The RBA’s mandate includes ensuring CPI is within a 2-3% band over a “reasonable timeframe.”