Markets Overview

  • ASX SPI 200 futures little changed at 7,486.00
  • Dow Average up 0.4% to 37,220.23
  • Aussie up 1.0% to 0.6797 per US$
  • U.S. 10-year yield rose 4.6bps to 3.8937%
  • Australia 3-year bond yield fell 3.8 bps to 3.67%
  • Australia 10-year bond yield fell 3.1 bps to 4.02%
  • Gold spot up 0.6% to $2,043.94
  • Brent futures down 0.6% to $79.25/bbl

Economic Events

  • 11:30: (AU) Nov. Private Sector Credit YoY, prior 4.8%
  • 11:30: (AU) Nov. Private Sector Credit MoM, prior 0.3%

US stocks extended a rebound ahead of Friday data expected to show the Federal Reserve’s preferred inflation metric is close to its target.

The S&P 500, up 0.9%, is on the precipice of an eight-week winning streak — its longest in more than five years — if it can hold onto gains. The Nasdaq 100 index faces a similar challenge, the tech-heavy benchmark rose over 1% after Wednesday’s bout of selling had knocked it off record highs. The VIX briefly rose above 14 for the first time since November, Wall Street’s gauge of stock volatility has been trading near multi-year lows.

The Fed’s preferred inflation metric, the so-called core personal-consumption expenditures price index — is broadly expected to hit the central bank’s 2% target when the report comes out ahead of the US stock market open Friday.

Though the devil will be in the details on whether or not the data will back up the Fed Chair’s recent pivot, according to Bloomberg Economics.

Some market watchers blamed Wednesday’s swoon on so-called zero-day, or ODTE, options, noting that hefty “put” volumes likely added to the selloff as some option sellers balanced their books.
But the broader picture of slowing inflation and rate-cut bets mean such speed bumps will be short-lived, many argue.

The global bond rally took a breather as the yield on the US two-year hovered around 4.35%. The rate on the US 10-year — tied to everything from mortgage to lending rates — edged up to 3.88%, its still down roughly 50 basis points this month.

Gross domestic product was revised lower to a 4.9% annualized rise in the third quarter, trailing economists’ projections, the government’s third estimate of the figures Thursday showed. Initial applications for US unemployment insurance rose last week by less than forecast, remaining near historic lows.

Following the data, swaps traders are betting on at least six quarter point interest rate cuts from the US central bank by the end of next year, well ahead of the three policymakers signaled last week.

In commodities, oil prices retreated after three days of gains, as surging US production tempered the threat of Houthi attacks on ships in one of the world’s most important waterways.

The US dollar resumed a slide, falling against all of its Group-of-10 peers Thursday.

Other News

Emerging market debt investors should latch onto countries with good access to cash and financing sources even if it means giving up double-digit yields, according to portfolio managers at Macquarie Asset Management.

Paraguay, Dominican Republic, Chile, Ivory Coast and Indonesia are better prepared to navigate a potential slowdown in global growth, according to Alexander Kozhemiakin, head of EM debt at the Australian asset manager. On the other hand, countries like Ethiopia, which early this month missed a coupon payment, remind him of the emerging-market debt crises of the 1990s on the back of “poor institutional frameworks, large external imbalances and, very often, fixed-exchange rate regimes,” he said.

“The countries that we like most in the current environment are some of the most boring,” New York-based Kozhemiakin said in an interview. “They have external buffers. They may not have double-digit yields, but they may be in a much better risk-adjusted trade than some of the frontier countries.”

In contrast, UBS Asset Management, sees bonds from the riskiest emerging markets set to do well as governments carry out the reforms needed to unlock emergency bailout financing. Amundi SA, Europe’s biggest money manager, likes debt from Argentina and Ukraine securities, which are already among the outperformers this year even though they have virtually no access to international bond markets.

A Bloomberg index of dollar-denominated bonds issued by emerging market governments is on track to post returns of over 10.5%, the highest since 2019, as financial markets rally on bets the Federal Reserve will cut rates next year amid expectations for an economic slowdown. Even so, the extra yield investors demand to hold emerging-market debt instead of Treasuries is at 363 basis points — close to the lowest since October and well below average risk premium in the last five years, according to the index.

“There may still be potential gains from the underlying US Treasury yields, but given the current valuation of spreads, I would say you are better off in countries or corporates with external buffers,” said Kozhemiakin. Total returns for dollar-denominated debt from the developing world will be in the high single digits next year, he added.

Bonds of Ivory Coast included in the index yield around 7.3%, Dominican Republic are around 6.3% and Paraguay’s are at 5.8%. Chile’s bond are quoted at a yield of about 5% and Indonesia’s around 4.8%. The yield of the Bloomberg index compiling emerging market sovereign debt is 7.65%.

While a more boring portfolio is best in the current market, Kozhemiakin said, at the same time, “we’re constantly looking for opportunities.”