Markets Overview

  • ASX SPI 200 futures down 0.4% to 6,934.00
  • Dow Average down 1.3% to 32,990.23
  • Aussie down 0.9% to 0.6303 per US$
  • U.S. 10-year yield rose 11.7bps to 4.7955%
  • Australia 3-year bond yield rose 0.9 bps to 4.09%
  • Australia 10-year bond yield rose 5.4 bps to 4.54%
  • Gold spot down 0.2% to $1,824.06
  • Brent futures up 0.5% to $91.15/bbl

Economic Events

  • 09:00: (AU) Sept. Judo Bank Australia PMI Composite, prior 50.2
  • 09:00: (AU) Sept. Judo Bank Australia PMI Services, prior 50.5
  • 11:00: (AU) Australia to Sell A$800 Million 2.75% 2035 Bonds

Stocks sank while Treasury yields hit new multi-year highs after jobs data bolstered the case for the Federal Reserve to keep interest rates elevated.

The S&P 500 fell 1.4% to a four-month low while the Nasdaq 100 index dropped 1.8% after job openings unexpectedly increased in August. A House vote oustering Speaker Kevin McCarthy could further fuel uncertainty tomorrow. Wall Street’s fear gauge, the CBOE Volatility Index or VIX, rose above 20 intraday — a key level signaling increased skittishness in the market — the highest such reading since May. The ICE BofA MOVE Index, which tracks expected bond volatility, also approached May peaks.

Markets tumbled across the board after the number of available positions rose to 9.61 million from less than 9 million in July, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS. The report drove swaps traders to increase wagers on the Federal Reserve raising rates in December to better than a 50-50 odds.

Investors have yet to fully embrace the Fed’s higher-for-longer narrative and are instead following “fickle market momentum,” according to Luke Templeman, an analyst at Deutsche Bank. “Small catalysts are causing an outsized number to attempt to preempt market moves.”

The next datapoint for the labor market will be a monthly payrolls print on Friday where traders will looking for any signs of cooling.

Yields on the US 10- and 30-year traded to the highest level since 2007, with the longer-term bond reaching above 4.9%. Wall Street has been speculating that rates on longer dated bonds will hit 5%. The climb in yields was also stoking anxiety in the credit market where at least two issuers called off sales Tuesday.

Other News

Policy continuity is the key standout from Michele Bullock’s first meeting as governor of the Reserve Bank of Australia. The RBA kept the key rate steady at 4.10%. The only change of note in the statement is the observation that the recent spike in oil prices has been feeding through to prices at the pump – but this was not enough of a threat to push the RBA to end its rate pause or jeopardize its outlook for inflation to fall back within the 2-3% target band in late 2025.

The RBA’s assertion that more hikes may be needed is likely to turn out to be jawboning. We remain of the view that the rapid pass-through of previous hikes will crimp demand, reducing the risk that the oil price shock reignites inflation.