Markets Overview

  • ASX SPI 200 futures little changed at 7,018.00
  • Dow Average down 0.7% to 33,880.21
  • Aussie down 0.5% to 0.6369 per US$
  • U.S. 10-year yield rose 13.4bps to 4.6260%
  • Australia 3-year bond yield rose 0.6 bps to 4.16%
  • Australia 10-year bond yield fell 5.3 bps to 4.53%
  • Gold spot up 0.4% to $1,958.73
  • Brent futures up 0.3% to $79.78/bbl

Economic Events

  • 11:30: (AU) RBA-Statement on Monetary Policy

Treasury yields surged, while stocks finished lower as Jerome Powell threw cold water on Wall Street’s dovish wagers.

Just eight days after his speech had fueled bets the Federal Reserve was done with rate hikes, Powell said officials won’t hesitate to tighten again if needed. While that’s essentially what several Fed speakers have been saying, it’s the part that drew investors attention Thursday — especially after a rally in both equities and bonds.

The S&P 500 halted what would have been its longest advance since 2004, while two-year rates topped 5%. A weak sale of 30-year notes also weighed on sentiment, raising concern about the market’s ability to absorb new debt. Powell’s comments also made traders price in slightly higher odds of an additional Fed hike, while paring bets on a rate cut happening before July.

Other News

Rates traders are betting that the steepest global tightening cycle in a generation is over and that monetary easing will begin from mid-2024.

Swaps signal the average cash rate for developed economies will be steady over the coming six months, the first time in two years that they’re not pricing in a hike over that time frame, according to data compiled by Bloomberg. They also show a 50-basis point reduction in the aggregated rate within a year, the biggest bet on easing since the pandemic.

From Europe to the US and Australia, bonds have bounced back this month as traders speculate that central banks may soon call a halt to monetary tightening as price pressures recede. To be sure, it’s a risky bet as previous wagers to that effect backfired after inflation proved to be stickier than anticipated and expectations of a recession failed to materialize.

“The global data picture suggests higher cash rates are doing their work in slowing demand and the oil price is signaling the same,” said Prashant Newnaha, a rates strategist for TD Securities Inc. in Singapore.“The sharp rally in the long end appears to be driven by renewed pension buying after yields hit fresh highs, with the move lower in oil providing an additional catalyst.”

Benchmark 10-year Treasury yields have fallen more than half a percentage point to 4.5% since reaching a 16-year high last month as the Federal Reserve indicated it may be done with raising borrowing costs. Similar-maturity Australian yields tumbled more than 40 basis points in November after the central bank signaled a higher hurdle to further tightening.

The outlook for cash rates across global markets has shifted even as the Bank of Japan laid the groundwork for a withdrawal of stimulus and the Reserve Bank of Australia raised borrowing costs this week. Rates traders are betting that the Australian cash rate will be unchanged a year from now, even if the RBA raises rates in mid-2024.

The European Central Bank is seen as the most likely to start the cutting cycle, with traders pricing in a 68% chance it lowers rates at its April meeting.

ECB Governing Council member Francois Villeroy de Galhau said on Thursday it’s too soon to talk about a rate cut, adding that will come when “everyone is convinced that inflation will come back to 2%.”