Markets Overview

  • ASX SPI 200 futures down 1.4% to 7,012.00
  • Dow Average down 1.1% to 34,070.42
  • Aussie down 0.5% to 0.6416 per US$
  • U.S. 10-year yield rose 8.4bps to 4.4921%
  • Australia 3-year bond yield rose 10 bps to 4.04%
  • Australia 10-year bond yield rose 8.5 bps to 4.30%
  • Gold spot down 0.5% to $1,920.04
  • Brent futures down 0.3% to $93.21/bbl

Economic Events

  • 09:00: (AU) Sept. Judo Bank Australia PMI Servic, prior 47.8
  • 09:00: (AU) Sept. Judo Bank Australia PMI Compos, prior 48.0
  • 09:00: (AU) Sept. Judo Bank Australia PMI Mfg, prior 49.6

Equity markets in Asia are poised to gap lower after US stocks suffered the biggest drop in six months.

Futures for indexes in Japan, Hong Kong and Australia all pointed to declines, extending weekly losses. The S&P 500 fell 1.6% on Thursday, the most since March, and all major US equity benchmarks broke below their key 100-day moving averages. Treasury 10-year yields rose and the dollar strengthened as the latest reading on the labor market reinforced the case for the Federal Reserve’s higher-for-longer stance.

Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023.

The yen rallied on haven bids in US trading ahead of a Bank of Japan policy decision, after weakening to a fresh 10-month low near the 150 level that some analysts consider to be a trigger for intervention. While policymakers are widely expected to keep monetary stimulus unchanged Friday, remarks that Governor Kazuo Ueda might make on negative rates or correlations between currencies and policy will be closely watched.

The pound fell after the Bank of England kept rates unchanged for the first time in almost two years. The MSCI Emerging Markets Index of stocks erased its 2023 advance. Oil steadied as the broad, risk-off sentiment eroded gains driven by a Russian ban on gasoline and diesel exports, and is set for its first weekly drop this month.

Bond traders are bracing for Treasury yields to keep pushing higher after the Fed signaled it’s likely to hold interest rates at lofty levels well into next year.

Fifty-eight percent of the 172 respondents in the Bloomberg Markets Live Pulse survey conducted after the Fed’s decision said that two-year Treasury yields have yet to peak, while a plurality expect 10-year yields to climb over 4.5%.

Other News

Australia has recorded its first budget surplus since the eve of the 2008 global financial crisis as an ultra-tight labor market and elevated commodity prices swelled the nation’s fiscal coffers.

The underlying cash surplus was A$22.1 billion ($14.2 billion) in the 12 months through June 30 this year, or 0.9% of gross domestic product, easily exceeding the A$4.2 billion windfall predicted in the May 9 budget. Still, the government’s books are expected to slip back into the red as mineral prices retrace and a sharp tightening of monetary policy pushes up unemployment.

The center-left Labor government has been forced to bank most of the fiscal windfall to avoid further fueling inflation. It’s trying to act in concert with the Reserve Bank that raised its cash rate to 4.1% in June from a record-low 0.1% in April 2022.

The RBA has paused at its past three meetings amid signs that price pressures are beginning to abate.

“Our responsible budget management has not just delivered the first surplus in 15 years, it’s also taken pressure off inflation, interest rates and the cost of living,” Treasurer Jim Chalmers said in a statement. “By banking most of the revenue upgrade when inflation was at its peak, our budget strategy has been exactly right for the times and suited to the challenges we confront.”

The surplus is the first by a Labor government since 1989-90 when Paul Keating was treasurer. That fiscal position was rapidly unwound as the nation slid into a deep recession in 1991.

“Despite the surplus for 2022-23, structural pressures are intensifying rather than easing on the budget and these will take more than one year or one parliamentary term to address,” Chalmers said.

In its May budget, the government forecast the books would swing back to a deficit of A$13.9 billion in the current fiscal year, widening to A$35.1 billion, 1.3% of GDP, in 2024-25.