Markets Overview
- ASX SPI 200 futures up 0.6% to 7,095.00
- Dow Average up 0.3% to 33,666.34
- Aussie up 1.2% to 0.6428 per US$
- U.S. 10-year yield fell 3.3bps to 4.5748%
- Australia 3-year bond yield rose 6.8 bps to 4.11%
- Australia 10-year bond yield rose 7.9 bps to 4.46%
- Gold spot down 0.6% to $1,864.75
- Brent futures down 1.4% to $95.17/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$800 Million 2.25% 2028 Bonds
- 11:30: (AU) Aug. Private Sector Credit YoY, prior 5.3%
- 11:30: (AU) Aug. Private Sector Credit MoM, est. 0.3%, prior 0.3%
Stocks in Asia were poised to follow a rebound in the US as the month and quarter draw to a close, while oil’s rally faltered and Treasury yields fell.
Equity futures for benchmarks in Japan, Australia and Hong Kong rose after the S&P 500 gained 0.6% and the Nasdaq 100 advanced 0.8% on strong performances by tech behemoths including Nvidia Corp. and Meta Platforms Inc. Oil tempered this week’s rally as investors cashed out. Treasury yields fell from 16-year highs on weak consumer spending data and dovish Fed comments.
September is still shaping up to be the worst month in 2023 for the US stock benchmarks and the weakest month for global bonds since February after the Federal Reserve left interest rates at the highest in 22 years at its last meeting. Oil has rallied for a fourth month, and is set for its best quarter since March 2022, following production cuts by OPEC+ linchpins Saudi Arabia and Russia.
The yen gained versus the dollar for the first session in five ahead of the release of key industrial production, retail sales, and labor figures in Japan. Meanwhile, China starts its Golden Week holiday on Friday, which may damp trading in the region through the first week of October.
In the US, dovish-leaning comments from one policymaker and weak consumer spending data helped stoke hope for some easing of the Fed’s messaging. Even if the US enters a recession it should be able to skirt a more severe downturn, according to Richmond Fed President Tom Barkin. Chair Jerome Powell sidestepped investor concerns over the outlook for interest rates at an event.
It’s still too early to know if another rate increase will be needed, Barkin told Bloomberg Television. Earlier, the Chicago Fed’s Austan Goolsbee said policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to quell inflation.
Personal consumption, the main driver of the US economy, rose an annualized 0.8% in the April-to-June period, the weakest advance in over a year. Other data showed GDP rose at an unrevised 2.1% rate during the period while weekly jobless claims came in lighter than estimates. Traders will next be looking to Friday data on the Fed’s preferred measure of inflation — the personal consumption expenditures price index.
Other News
Australia’s central bank will stand pat for a fourth straight meeting next week as past interest-rate increases gain greater traction, giving new Governor Michele Bullock scope to wait and assess.
Most economists expect the Reserve Bank will keep the cash rate at 4.1% on Tuesday, with the board looking through higher oil prices that interrupted a moderation in inflation.
Bullock, in her first policy meeting as governor, will also be mindful that many Australian borrowers are being forced to switch to higher-rate loans as their pandemic-era low-cost fixed mortgages come up for renewal. “The Australian household is the most impacted by policy rates that it’s ever been,” said Robert Mead, co-head of Asia-Pacific portfolio management in Sydney for Pacific Investment Management Co. “That’s why policy is likely to get more traction here than in the US.”
Over 90% of new Australian home loans are on floating rates, compared with the US where a majority are fixed for 30 years.
That means the effective mortgage rate has climbed to 5.6% from 2.75% in Australia compared with 3.6% from 3.3% in the US during the current tightening cycle, Westpac Banking Corp. calculations show.
The RBA has repeatedly stressed that a key economic uncertainty is how rising borrowing costs impact Australian households, which are the third most indebted in the developed world.
That and the prevalence of floating rates are feeding expectations that Australia’s economy will be one of the earlier ones to crack at a time when the US is likely to experience a soft landing.
“Excess savings are being eroded incredibly quickly,” Mead said. “We’re in the epicenter of the switch to floating-rate mortgages from fixed-rate ones.”