Markets Overview

  • ASX SPI 200 futures down 1.1% to 7,758.00
  • Dow Average down 1.5% to 39,065.26
  • Aussie down 0.2% to 0.6606 per US$
  • US 10-year yield rose 5.4bps to 4.4767%
  • Australia 3-year bond yield fell 0.1 bps to 3.93%
  • Australia 10-year bond yield fell 2.9 bps to 4.26%
  • Gold spot down 2.1% to $2,328.50
  • Brent futures down 0.5% to $81.47/bbl

Economic Events

  • 09:00: (AU) May Judo Bank Australia PMI Servic, actual 53.1, prior 53.6

Asian stocks tracked Wall Street lower following activity data that signaled the Federal Reserve may keep rates on hold for most of this year.

Stocks fell in Australia and Japan, while equity futures in Hong Kong pointed to losses of more than 1% at the open Friday. The Golden Dragon Index of US-listed Chinese shares fell 3.7% Thursday, the most in six weeks. US contracts were steady after the S&P 500 fell the most this month and the Dow Jones Industrial Average lost 1.5%.

Swaps now fully price the Fed’s first full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer.

“For central banks that have a responsibility for optimizing economic welfare, the growth climate is welcome,” Australia & New Zealand Banking Group economists including Henry Russell wrote in a note to clients. “Therefore, the primary uncertainty for rate setters continues to be whether inflation will continue to progress toward target despite economies operating strongly.”

Emerging Asian currencies, including South Korea’s won and Malaysia’s ringgit, fell on the back of a stronger dollar.

In Japan, inflation eased for a second month as investors continued to weigh whether the Bank of Japan has capacity to raise interest rates further this year. The yield on 10-year Japanese government bonds topped 1% this week as markets almost fully price a 10 basis point hike at the July meeting, according to data compiled by Bloomberg. The yen is trading around 157 per dollar.

Other News

Australians in their mid-to-late 20s are cutting back on spending to cope with rising living costs, while those aged over 65 are consuming at a rate faster than inflation, highlighting the nation’s increased intergenerational inequality.

People aged 25-29 reduced spending by 3.5% in the first three months of 2024 compared with a year earlier, Commonwealth Bank of Australia, the nation’s largest lender, said in a report on Thursday. It analyzed the transactions of roughly 7 million people and found that this young cohort was the only one to cut back on both essential and discretionary expenses.

“This highlights the difficult choices people in this age bracket are making, with some having to make larger lifestyle changes like foregoing their health insurance,” said CommBank iQ Head of Innovation and Analytics Wade Tubman. “The decrease in utilities spending could also suggest young Aussies are moving back in with parents or into shared accommodation to split costs.”

Australians in the older age bracket are spending above the rate of inflation, especially on activities like travel, up 11%, general retail, 9% and eating out, 7%, the data showed. Australia’s annual CPI came in at 3.6% in the first quarter.

Housing expenses such as mortgages and rent weren’t included in the analysis.

The Reserve Bank of Australia raised interest rates 13 times between May 2022 and November 2023 to try to slow the economy and pull down inflation. But that’s delivered a steady increase in interest income for older Australians, who went from receiving virtually nothing on their savings to pocketing the highest returns in about 12 years.

Public policies such as housing tax concessions also tend to benefit older Australians.

Younger Australians, in contrast, are often stuck in insecure work and face soaring costs of rental accommodation, leaving them in a precarious financial position. The government is trying to ease some of that burden, with energy and rent relief announced in this month’s budget.