Markets Overview

  • ASX SPI 200 futures up 0.3% to 7,099.00
  • Dow Average little changed at 33,975.25
  • Aussie up 0.3% to 0.6364 per US$
  • U.S. 10-year yield rose 12.4bps to 4.8299%
  • Australia 3-year bond yield rose 14 bps to 4.09%
  • Australia 10-year bond yield rose 8.9 bps to 4.55%
  • Gold spot up 0.2% to $1,923.16
  • Brent futures up 0.8% to $90.33/bbl

Economic Events

  • 09:30: (AU) RBA’s Bullock-Fireside Chat
  • 10:30: (AU) Sept. Westpac Leading Index MoM, prior -0.04%
  • 10:40: (AU) RBA’s Smith-Speech

Treasury yields climbed and stocks struggled after solid economic reports reinforced the case for the Federal Reserve to keep interest rates higher for longer.

Two-year US yields hit the highest since 2006, while those on 10-year notes jumped 13 basis points to 4.83%. Swap contracts tied to Fed rate decisions showed traders are pricing in more than 60% odds that policymakers will raise interest rates by another quarter percentage point in January after holding steady in November. A move in December is considered possible, but less likely than January.

The S&P 500 erased gains, led by losses in its most-influential group — technology. Nvidia Corp. slumped as the US is restricting the sale of chips the company designed for the Chinese market. Goldman Sachs Group Inc. fell amid a 33% slide in profit. Bank of America Corp. advanced after traders reported their best third-quarter results in more than a decade.

Retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing. The reports prompted a slew of economists, from Goldman Sachs to JPMorgan Chase & Co. and Morgan Stanley, to boost their tracking estimates for third-quarter gross domestic product.

Fed Bank of Richmond President Thomas Barkin said policymakers “have time” to work out whether they can hold interest rates steady or if they need to raise them further to get inflation to policymakers’ 2% goal.

Traders also kept a close eye on the latest geopolitical events, with President Joe Biden set to travel to Israel Wednesday as a show of solidarity after the Oct. 7 attack by Hamas — which is designated a terrorist organization by the US and European Union. The Israeli military struck the south of the Gaza Strip after ordering people to seek refuge there.

The Bank of Israel underscored the urgency of steadying the shekel following its slide to an eight-year low, reversing expectations among traders who bet on a big interest-rate cut as soon as next week.

Elsewhere, the Bank of Japan is likely to discuss raising its inflation projection for fiscal year 2023 and 2024 at its policy meeting later this month, extending the period in which it sees prices hitting or exceeding its 2% goal, according to people familiar with the matter. Following news of the central bank price view, the yen briefly strengthened.

Other News

A senior leader in the Pacific warned the US and Australia not to abandon the region and called for an “ocean of peace” to cool strategic competition between Beijing and Washington.

Fiji Prime Minister Sitiveni Rabuka said that while the US was a close friend of the Pacific, for a time there was a feeling that Washington had moved away and delegated relations with the region to Australia.

“You carry that on your shoulders, friends,” he said in a speech to Australian diplomats and officials in Canberra on Tuesday evening. “Don’t abandon us again.”

Australia and the US ramped up diplomatic efforts in the Pacific, following a shock announcement last year the Solomon Islands signed a security agreement with the Chinese government. While no details about the agreement have been released, a draft version allowed Chinese warships safe harbor just 2,000 kilometers (1,200 miles) from the Australian coast.

Rabuka said he applauded a “revived commitment” by the US and Australia to the region. US President Joe Biden hosted Rabuka and his fellow Pacific leaders at the White House earlier in October for the second time in two years.

US-China rivalry was “very evident” in the Pacific, Rabuka said. “We’re friendly with China now and the US always, and do not want to be caught in the struggle between the superpowers,” he said at the event hosted by the Lowy Institute.

Rabuka took power in Fiji after winning an election in December last year, beating former leader Frank Bainimarama who had pursued warmer relations with the Chinese government.

Since coming to power, Rabuka has floated the possibility of canceling a policing agreement that the previous government signed with China. His government also allowed Taiwan’s unofficial embassy in Fiji to change its name to include “Republic of China” and restored diplomatic privileges. It reversed that decision in June, according to Taiwan’s state news agency CNA.