- ASX SPI 200 futures little changed at 7,378.00
- Dow Average down 0.8% to 37,277.43
- Aussie down 1.1% to 0.6585 per US$
- U.S. 10-year yield rose 12.2bps to 4.0619%
- Australia 3-year bond yield rose 6.4 bps to 3.73%
- Australia 10-year bond yield rose 7.3 bps to 4.15%
- Gold spot down 1.3% to $2,030.03
- Brent futures little changed at $78.17/bbl
- 11:00: (AU) Australia to Sell A$800 Million 3.5% 2034 Bonds
Wall Street pared its bets on Federal Reserve rate cuts on speculation the dovish bid emboldening stock and bond bulls has gone too far.
Equities fell, while Treasury yields climbed with the dollar as Fed Governor Christopher Waller appeared to push back against expectations for as many as six rate cuts this year. While Waller wasn’t outright hawkish, his remarks weren’t massively dovish either — prompting a recalibration of interest-rate wagers. Fed swaps show the probability of policy easing as soon as March dropping to about 65% from almost 80% Friday.
US 10-year yields topped 4%, the greenback rose the most since March and the S&P 500 lost steam. Morgan Stanley slid amid a warning on lower margins in wealth, while Goldman Sachs Group Inc. rose as profit beat estimates. Boeing Co. sank on an analyst downgrade. Apple Inc. slipped as the US Supreme Court refused to consider its appeal in an antitrust suit challenging the App Store.
Analysts at Bank of America Corp. are cutting through the buzz of speculation around the timing of now widely-expected interest rate hikes with a question so outlandish they are calling it “the unthinkable.”
What happens, they asked in a research note published Tuesday, if the market consensus for aggressive monetary loosening fails to materialize at all?
The answer is a rally in the US dollar, euro and Swiss franc, according to the bank’s models based on no Group-of-10 central bank cuts interest rates this year. The Australian dollar and the Japanese yen would lag, the currency strategists found.
The scenario may seem “completely unrealistic to the consensus,” but it’s worth considering given that the early rate cuts markets were expecting this time last year didn’t take place, the strategists wrote. “We are puzzled by the aggressive market pricing of rate cuts this year,” they added.
Money markets are currently primed for around six quarter-point cuts from the Federal Reserve and the European Central Bank, following their historic hiking campaigns. BofA also expects cuts, but they predict only four for the Fed and three for the ECB.
The dollar, euro and Swiss franc could also benefit, though maybe only temporarily, if rate cuts come later or are slower than is priced in by the market, the BofA team wrote.