Markets Overview

  • ASX SPI 200 futures down 0.3% to 7,563.00
  • Dow Average down 0.5% to 38,463.29
  • Aussie down 0.5% to 0.6482 per US$
  • U.S. 10-year yield rose 14.2bps to 4.1617%
  • Australia 3-year bond yield rose 13 bps to 3.68%
  • Australia 10-year bond yield rose 12 bps to 4.10%
  • Gold spot down 0.7% to $2,026.07
  • Brent futures up 0.9% to $78.06/bbl

Economic Events

  • 11:30: (AU) 4Q Retail Sales Ex Inflation QoQ, est. 0.1%, prior 0.2%
  • 14:30: (AU) RBA-Statement on Monetary Policy
  • 14:30: (AU) Feb. RBA Cash Rate Target, est. 4.35%, prior 4.35%
  • 15:30: (AU) RBA Governor Bullock-Press Conference

Wall Street traders sent bonds sliding once again after stronger-than-estimated economic data and signals that the Federal Reserve isn’t ready to call victory over inflation just yet.

Treasuries came under renewed pressure, with 10-year yields up 14 basis points to 4.16%. Fed swaps almost wiped out the odds of a March rate move, and the chances of a May cut have also been reduced. The dollar was set for its strongest since November. The S&P 500 came off session lows as Nvidia Corp. led gains in chipmakers. The Fed said US banks reported tighter credit standards and weaker demand for commercial and industrial loans in the fourth quarter, according to a survey of lending officers known as SLOOS.

In another sign that the world’s largest economy remains on solid footing, the US service sector expanded by the most in four months. The Institute for Supply Management’s overall gauge of services increased to 53.4 — remaining above the 50 level that indicates expansion. What really got investors’ attention was the fact that a metric of prices paid for materials surged — showing that costs are rising at a faster pace.

Other News

Australia’s central bank is widely expected to hold interest rates at a 12-year high at its first meeting of the year, with investors zeroing in on the future path of policy under a revamped communications regime.

Economists unanimously expect the Reserve Bank will keep its cash rate at 4.35% and probably maintain a hawkish stance given inflation, while cooling, is still elevated. As part of an overhaul, the meeting begins Monday with the decision announced at 2:30pm on Tuesday, when updated forecasts will also be released, followed by the governor’s press conference at 3:30pm.

The RBA “is likely to welcome faster than expected progress towards the target,” said Micaela Fuchila, an economist at BofA Securities in Sydney, referring to inflation data that came in under estimates. That should be sufficient to “confirm rates have peaked.”

Still, the RBA may join global peers such as the Federal Reserve in pushing back against any bets on a near-term easing, reflecting Australia’s cautious rate-hike campaign and inflation that is still well above the 2-3% goal. Fuchila, who only sees the first rate cut in early 2025, expects the statement to stay hawkish “as domestic inflation remains elevated and sticky.”

The RBA’s cash rate is about 1 percentage point below the Fed’s, even as Australian inflation is higher than in the US. Those differences help explain why Governor Michele Bullock is expected to retain a hawkish position, particularly as traders responded to slower fourth-quarter CPI by bringing forward bets on rate cuts.

Data last week showed headline and core inflation came in a bit over 4%, compared with the RBA’s 4.5% forecasts, prompting money markets to price a 50-50 chance of easing in May and an 80% chance in June.

Economists reckon the central bank in Sydney is more likely to lower rates in the final three months of this year or even 2025.

Australia’s labor market, meanwhile, remains solid and the economy has shown resilience to higher borrowing costs, suggesting there’s no urgency to shift quickly to easing. Moreover, policymakers won’t want to further fuel house prices that have been driven up by a supply shortage and high immigration.

Economists anticipate the central bank will revise its inflation and growth outlook in its quarterly Statement on Monetary Policy.

The bank’s current forecasts show price gains only hitting the top of the target in late 2025, behind economists’ estimates.

“The job of returning inflation to the 2‑3% target band is not yet done. But the RBA is now on the home stretch,” said Gareth Aird, head of Australia economics at Commonwealth Bank of Australia, the nation’s largest lender.

“The post‑meeting statement accompanying the decision will be issued by the board, rather than the governor. This raises the risk that we get a fresh statement rather than the usual ‘cookie cutter’ approach.”