Markets Overview

  • ASX SPI 200 futures down 0.2% to 7,659.00
  • Dow Average down 0.5% to 38,714.77
  • Aussie down 0.3% to 0.6562 per US$
  • US 10-year yield rose 1.6bps to 4.3063%
  • Australia 3-year bond yield rose 6 bps to 3.74%
  • Australia 10-year bond yield rose 7.6 bps to 4.13%
  • Gold spot down 0.3% to $2,155.90
  • Brent futures little changed at $85.34/bbl

Economic Events

Stocks fell at the end of a jittery week as tech sold off and a pile of options expiring Friday amplified market swings.

Wall Street faced a quarterly episode ominously known as triple witching — in which derivatives contracts tied to stocks, index options and futures matured — compelling traders en masse to roll over their existing positions or to start new ones. About 19 billion shares changed hands on US exchanges. That’s roughly 60% above the three-month average volume.

“It’s a day in which the direction of the market is very, very difficult to predict,” said Matt Maley at Miller Tabak. “The ‘internals’ get so skewed by the expiration that they don’t tell us anything. It will be important that investors don’t use today’s action when trying to decipher what is going to happen in the marketplace next week and beyond.”

About $5.3 trillion were set to expire Friday, according to Rocky Fishman, founder of derivatives analytical firm Asym 500. The US options event came at a critical juncture for markets positioning for next week’s Federal Reserve policy meeting. A recent pickup in inflation has intensified the debate around the degree of easing officials will signal for 2024.

The S&P 500 dropped below 5,120, while the tech-heavy Nasdaq 100 fell over 1%. Treasury 10-year bonds saw their worst week this year.

Other News

Australia’s central bank is widely expected to hold interest rates at a 12-year high on Tuesday as the economy shows signs of slowing further while unemployment trends higher.

Economists expect the Reserve Bank will keep its cash rate at 4.35% for a third straight meeting, while maintaining a hawkish bias amid uncertainty over the strength of a disinflationary impulse. The board meeting — the first for Deputy Governor Andrew Hauser — begins Monday with the decision released at 2:30 p.m. in Sydney on Tuesday, followed by the governor’s press conference an hour later.

“We expect a slight tightening bias will be kept,” said Chris Read, a Sydney-based economist at Morgan Stanley. “The governor will likely highlight how the data over the past six weeks has evolved broadly as expected and is consistent with continued progress towards the RBA’s targets.”

Australia’s policy announcement will likely come shortly after a decision by the Bank of Japan, which may raise rates on Tuesday for the first time since 2007 following solid outcomes in wage negotiations. A day later, the Federal Reserve will probably release an on-hold decision.

RBA Governor Michele Bullock will be mindful of global inflationary trends with price pressures in the US, in particular, abating only gradually. That has led Fed Chair Jerome Powell to say he and his colleagues aren’t ready to cut rates yet.

Australian policymakers have also pushed back against bets on near-term easing, reflecting concerns that inflation remains well above the 2%-3% target and is only forecast to return to the goal range at the end of 2025. Economists, who broadly see a first rate cut in the second half of the year, expect Tuesday’s statement to stay hawkish as inflation remains sticky.

Another reason to keep talking tough is the hot property market. Bullock and her colleagues would be loathe to further fuel home prices, which have been on an upswing driven by a supply shortage and strong population growth.

Swaps traders bet on high odds that the RBA will start easing in August, while they are fully pricing the Fed kicking off its rate-cut cycle in July.

Data since the RBA’s February meeting has indicated a slowing in the economy, which grew a feeble 0.2% in the final three months of 2023 from the prior quarter. In per capita terms, gross domestic product fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn outside the pandemic since 1991, according to Bloomberg Economics.

Monthly inflation for January came in at 3.4%, below economists’ estimates, though worries remain that the impact of falling goods prices is coming to an end, while services remain sticky. Retail sales for the month missed expectations, too.

Australia’s labor market is also showing signs of loosening, although with the unemployment rate at 4.1% it’s still healthy. Jobs data for February will be released on Thursday. The resilience of employment has given policymakers optimism that they can engineer a soft landing — bringing down inflation while holding onto the enormous job gains of recent years.

“There is light at the end of the tunnel,” Luci Ellis, chief economist at Westpac Banking Corp., said in a research note. Ellis was previously an RBA assistant governor.

“Inflation is moderating, which will help to lessen the pressure on households,” she said. “Policy is set to pivot from mid–year, with the stage-3 income tax cuts commencing from July 1 and the beginning of an RBA easing cycle, expected from September. Less restrictive policy will support an economic revival.”

On Friday, the RBA will publish its semi-annual financial stability report which will elaborate on the impact of rising borrowing costs on Australian banks, which have weathered the tightening cycle better than most expected.