Markets Overview

  • ASX SPI 200 futures down 0.8% to 7,726.00
  • Dow Average down 0.7% to 37,735.11
  • Aussie down 0.4% to 0.6442 per US$
  • US 10-year yield rose 8.0bps to 4.6014%
  • Australia 3-year bond yield fell 0.9 bps to 3.84%
  • Australia 10-year bond yield fell 0.5 bps to 4.26%
  • Gold spot up 1.7% to $2,383.35
  • Brent futures down 0.1% to $90.35/bbl

Economic Events

Asian stocks were poised to follow Wall Street shares lower after the latest evidence of stubborn US inflation spurred bets the Federal Reserve will be in no rush to cut rates.

Futures showed benchmarks markets in Japan, Hong Kong and Australia will open down, after the S&P 500 erased earlier gains and fell more than 1% in a volatile session. The decline was led by rate-sensitive tech megacaps Microsoft Corp., Apple Inc. and Nvidia Corp. Bond yields jumped on hot retail sales data, while oil whipsawed on geopolitical angst.

Volatility perked up, with the premium for one-month put options to protect against a pullback in US equities hitting the highest since October. Wall Street’s “fear gauge” — the VIX — hit levels unseen this year.

The S&P 500 broke below 5,100, dropping to the lowest in almost two months. The tech-heavy Nasdaq 100 slid over 1.5%. Both gauges breached their 50-day moving averages — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs Group Inc.

Treasury 10-year yields spiked nine basis points to 4.62%, while those on two-year notes came closer to 5%. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the US high-grade bond market, the first in a likely parade of bond sales from banks after results.

West Texas Intermediate reclaimed its $85 mark on Monday — after briefly falling below it — and edged higher early Tuesday in Asia. Gold continued to climb on fears of escalating tensions in the Middle East. Top Israeli military officials reiterated the country has no choice but to answer Iran’s weekend attack.

US retail sales rose by more than forecast in March and the prior month was revised higher, showcasing resilient consumer demand that keeps fueling a surprisingly strong economy. As long as a robust labor market supports household demand, there’s a risk that inflation will become entrenched.

Other News

The high tide for global interest rates has passed, but respite for the world economy may be limited as policymakers stay wary at the threat of inflation.

That’s the dominant theme this year prevailing across 23 major central banks tracked by Bloomberg. All but three are seen set to reduce borrowing costs — but the pace of easing for many of them looks ever less likely to mirror the aggressive speed at which tightening first took hold.

Even if renewed US inflation concerns prove unfounded enough that the Federal Reserve can begin steady rate cutting, the grip of monetary policy on the world won’t get markedly looser, according to Bloomberg Economics.

Its aggregate measure of borrowing costs across advanced economies is set to fall less than 100 basis points by the end of 2024. That’s not as much as it rose last year, and just a fraction of the 435 basis-point increase seen since mid-2021. And the lag in transmission means easing effects will take more time to feed through.

Such a policy path reflects how central bankers are treading a fine line between aiding anemic economies and guarding against a resurgence in consumer-price growth, potentially aggravated by another energy shock. A cloudier outlook for the Fed and the shadow of US presidential elections won’t help either.

Geopolitical tension, with conflict between Israel and Iran threatening conflagration in the Middle East, is an additional risk variable.

“Premature easing could see new inflation surprises that may even necessitate a further bout of monetary tightening,” International Monetary Fund chief Kristalina Georgieva said in a speech last Thursday heralding her institution’s meetings in Washington this week. “On the other side, delaying too long could pour cold water on economic activity.”

Policy may remain constricted in South Africa and Argentina and even tighter in crisis-ridden Nigeria, while Japan is poised to continue its exit from ultra-loose settings. But for most of the world, rate-cutting cycles poised either to begin or advance may offer only mild relief to consumers and businesses.