Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,555.00
  • Dow Average up 0.1% to 38,155.93
  • Aussie up 0.4% to 0.6599 per US$
  • U.S. 10-year yield fell 5.0bps to 4.0873%
  • Australia 3-year bond yield fell 4.6 bps to 3.76%
  • Australia 10-year bond yield fell 2.6 bps to 4.22%
  • Gold spot up 0.4% to $2,027.36
  • Brent futures down 1.3% to $82.47/bbl

Economic Events

  • 11:30: (AU) Dec. Retail Sales MoM, est. -1.7%, prior 2.0%

Wall Street’s busy week kicked off with gains in both stocks and bonds, with the Treasury surprising several traders after cutting its quarterly borrowing estimate to $760 billion.

The news came a few days before the Treasury’s quarterly refunding announcement and drew investors’ attention amid all the concern about a widening budget deficit. Treasury yields fell, lifting the tech-heavy Nasdaq 100 up 1% ahead of results from five megacaps that have a combined market value of more than $10 trillion. Aside from the deluge of earnings this week, investors are also awaiting the Federal Reserve’s rate decision and a raft of data from consumer confidence to jobs.

The S&P 500 topped 4,900, with Tesla Inc. leading gains in megacaps. Inc. abandoned its planned $1.4 billion acquisition of iRobot Corp., sinking shares of the Roomba maker. Treasury 10-year yields dropped seven basis points to 4.07%. Oil fell after last week’s rally pushed futures into overbought territory. At the same time, ample crude supplies outweighed military escalation in the Middle East.

Other News

Taiwan’s ties with the Pacific nation of Tuvalu have been cast into doubt following an election in which the incumbent prime minister lost his seat in Parliament, raising the risk of another country switching its diplomatic recognition to Beijing.

Tuvalu leader Kausea Natano didn’t win enough votes to hold onto his electorate in Friday’s ballot, resulting in the loss of a key Pacific supporter of Taiwan. His departure may also threaten a major security agreement between Australia and Tuvalu that was signed late last year.

The election results out of Tuvalu, a tiny Pacific nation with a population of just over 11,000 people, will be disappointing for Taiwan and Australia, said Meg Keen, director of the Pacific Islands Program at the Lowy Institute think tank.

But Keen said it wasn’t guaranteed that Tuvalu would now break with Taiwan. “The game is certainly on,” she said. “There will be big offers on the table from China, but it is far from a foregone conclusion.”

Tuvalu is one of three Pacific nations that still maintain diplomatic relations with Taiwan, following a decision by neighboring Nauru earlier this month to sever ties and establish links with the People’s Republic of China. The other two are Palau and the Marshall Islands.

Among candidates for Tuvalu’s next prime minister are former Finance Minister Seve Paeniu, who told Reuters prior to the ballot that ties with Taiwan would need to be “reviewed.” Former Prime Minister Enele Sopoaga, who has supported Taiwan in the past, is also a potential candidate.

Calls for a rethink of relations with Taipei were possibly just “strategic,” said Jess Marinaccio, a former official at Tuvalu’s Foreign Ministry, suggesting they were designed to elicit increased financial support from Australia, the US and Taiwan.

Marinaccio, now an assistant professor at California State University Dominguez Hills, said she didn’t believe Taiwan was in a substantially worse position than prior to the vote. She also said lawmakers were looking to form a cabinet by the end of this week.

Even before Friday’s polls, many Tuvalu lawmakers are calling for a renegotiation of an accord signed with Australia in November which gave Canberra greater say in the Pacific nation’s defense and security in return for enabling better migration access for Tuvalu’s citizens.

Hailed at the time as a historic pact and a win for Australia in its competition with China for influence in the Pacific, the deal has since sparked concern in Tuvalu over the surrender of so much sovereignty. The agreement must be ratified by Tuvalu’s parliament before it can come into effect.

Lowy’s Keen said it was likely Australia anticipated that the deal would face opposition. “They would have known that it would become an election issue,” she said. “It’s such a big thing.”