Markets Overview

  • ASX SPI 200 futures down 0.7% to 6,940.00
  • Dow Average down 0.7% to 33,433.02
  • Aussie little changed at 0.6333 per US$
  • U.S. 10-year yield rose 6.6bps to 4.9813%
  • Australia 3-year bond yield rose 6.5 bps to 4.24%
  • Australia 10-year bond yield rose 13 bps to 4.78%
  • Gold spot up 1.4% to $1,974.41
  • Brent futures up 1.9% to $93.27/bbl

Economic Events

Volatility gripped Wall Street as traders kept a close eye on any signs of a potential escalation of the Middle East conflict, while weighing Jerome Powell’s remarks for clues on the policy outlook.

After multiple twists and turns, the S&P 500 notched its third straight loss. Tesla Inc. sank over 9% on disappointing results. The US is seeing stepped-up drone attacks in Iraq and Syria, while an American destroyer in the Red Sea intercepted cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.

Treasury 10-year yields approached 5%, while two-year rates fell after Powell said the Federal Reserve will proceed carefully with rate hikes, while citing evidence that policy isn’t “too tight.” Swaps trimmed the implied odds of another Fed rate increase to just under 50%, and priced a start to cuts in July, compared with September previously.

Other News

Australia’s central bank does not need a “revolution,” opposition Treasury Spokesman Angus Taylor said, as the government prepares legislation to underpin an overhaul of the institution.

The Reserve Bank will set up an expert policy board, hold fewer meetings and give press conferences explaining its decisions in its first major reform since the early 1990s. This follows the recommendations of an independent review called by Treasurer Jim Chalmers that reported in April this year.

“Who is on the monetary policy board will be hugely important,” Taylor said in an interview with Bloomberg at Parliament House in Canberra.

“That’s where I think this risks becoming a process that heads in the wrong direction,” he said Thursday. “A radical change in the personnel we think would be disastrous.”

It remains unclear who will be appointed to the RBA’s two boards and how it will work. That’s fueled criticism from Australia’s longest serving Treasurer Peter Costello and former central bank chief Ian Macfarlane that the reforms could undermine the authority of the governor.

Australia Central Bank Revamp Is ‘Huge Risk,’ Ex-Governor Warns

Chalmers has pushed to make the reforms bipartisan. Support from Taylor and the Liberal-National Coalition would ensure the RBA changes could be passed through Parliament without needing the approval of the left-wing Greens party, which may want more radical changes to the legislation.

The shadow treasurer said he supported the bipartisan approach and is in regular discussions with Chalmers, but Taylor added he was worried about the signal sent by the appointment of former Fair Work Commissioner Iain Ross and AustralianSuper ex-chair Elana Rubin to the RBA board earlier this year.

“What we need in this country is a credible, capable, independent Reserve Bank,” he said. “A revolution in the Reserve Bank is not what’s needed.”

Separately Taylor said he was also worried about Australia’s efforts to contain inflation amid the threat of a wider war in the Middle East and a weakening Australian dollar.
Third-quarter inflation will be released on Wednesday and is likely to be pivotal in the RBA’s decision at its Nov. 7 meeting on whether to raise interest rates from the current 4.1% or stand pat for a fifth month.

The shadow treasurer said improvements in labor productivity were the only long-term guarantor of economic growth, but he said the drop since the center-Left Labor government took power was “unprecedented.”

“We have never seen labor productivity do what its done in the last five quarters. Nothing even close,” he said.

Productivity has been in long-term decline across the world over the past decade, including in Australia, suggesting it’s not just the government of the day responsible.