Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,225.00
  • Dow Average up 0.4% to 36,247.87
  • Aussie down 0.4% to 0.6577 per US$
  • U.S. 10-year yield rose 7.6bps to 4.2256%
  • Australia 3-year bond yield fell 2.1 bps to 3.90%
  • Australia 10-year bond yield fell 4.3 bps to 4.30%
  • Gold spot down 1.2% to $2,004.67
  • Brent futures up 2.4% to $75.84/bbl

Economic Events

A pair of solid economic readings shook markets on Friday, with stocks rebounding on speculation the US will be able to skirt a recession. Now the flip side to that story is that bond traders were forced to trim their bets on rate cuts in 2024 — sending yields soaring.

All around Wall Street, the prevailing view is: While economic strength makes many investors less apprehensive about a hard landing, it also implies the Federal Reserve might have to hold rates higher for longer. For Treasuries, that means an unwinding of the massive dovish trade that pointed to a Fed pivot as early as March. For equities, jobs and consumer resilience bodes well when it comes to Corporate America.

Following a slew of figures underscoring a labor-market slowdown, Friday’s jobs report showed unexpected strengthening. Nonfarm payrolls increased 199,000 last month, the unemployment rate fell to 3.7% and monthly wage growth topped estimates. Meantime, US consumer sentiment rebounded sharply in early December — topping all forecasts — as households dialed back their year-ahead inflation expectations by the most in 22 years.

The S&P 500 saw its sixth straight week of gains — its longest winning run since November 2019. Wall Street’s “fear gauge” — the VIX — came back to pre-pandemic levels. US two-year yields jumped 12 basis points to 4.72%. Swap contracts now show a 40% probability of a March rate cut — from over 50% prior to the economic data.

Traders are preparing for another busy week, with readings for the US consumer price index and retail sales, a compressed schedule of Treasury auctions — and the Fed’s final meeting of the year on the docket.

Other News

Australia plans to bring record-high levels of migration under control by cracking down on student visas and unskilled migration, as the country struggles with a growing housing crisis which has pushed rents to their highest levels in more than a decade.

Home Affairs Minister Clare O’Neil will release the center-left Labor government’s long-awaited Migration Strategy on Monday, aiming to return Australia’s migrant intake back to near pre-pandemic levels by June 2025 at the latest.

New estimates of net overseas migration to be released later this week will show Australia welcomed more than half a million people in the financial year ended June 30, according to the Department of Treasury. That is the highest annual arrivals in the country’s history and at least 100,000 more than was expected in April.

However projections, which will be released as part of the government’s Mid-Year Economic and Fiscal Outlook on Wednesday, will show net overseas migration is expected to drop to 375,000 in the financial year ending June 2024 and then 250,000 the following year.

The surge in migration has helped fuel Australia’s growing housing crisis, which has seen rents grow at their fastest rates in decades and worsened the cost-of-living crunch for a nation already struggling with stubbornly high inflation. Figures released by the Australian Bureau of Statistics for the year through September revealed nationwide rents grew by 7.6% over that period, the highest since 2009.

In a statement, O’Neil said the surge in migration over the past financial year was largely a post-pandemic “catch up” and was driven by international students.

“The Migration Strategy is all about getting migration working for the country, including by the right settings to ease workforce shortages that are holding our country back without putting undue stress on other parts of our economy,” she said.

As part of the Migration Strategy, O’Neil will announce plans for a new Skills in Demand visa to be brought in by late 2024 as one of a suite of measures to address skills shortages in the Australian economy. At the same time, there will be a crackdown on international student visas, including a plan to increase English language requirements by early next year.