Markets Overview
- ASX SPI 200 futures down 0.2% to 7,615.00
- Dow Average up 0.8% to 38,997.66
- Aussie up 0.3% to 0.6520 per US$
- US 10-year yield rose 10.2bps to 3.8900%
- Australia 3-year bond yield fell 4.4 bps to 3.64%
- Australia 10-year bond yield fell 3.1 bps to 4.02%
- Gold spot down 0.9% to $2,389.51
- Brent futures little changed at $76.35/bbl
Economic Events
- 09:00: (AU) RBA’s Hunter-Testimony
- 11:00: (AU) Australia to Sell A$800 Million 2.75% 2035 Bonds
Stocks in Asia are set to resume declines following a frenzy of dip buying that fueled a rebound in most markets across the globe on Tuesday. US futures fell in early trading.
Equity futures pointed to drops in Tokyo and Sydney, though Hong Kong was set to gain after four days of losses. The S&P 500 and Nasdaq 100 rose on Tuesday — following a Japanese-led rebound in Asia — with both climbing 1% as buyers scooped up bargains after a rout that shook markets around the world. Wall Street’s “fear gauge” — the VIX — saw its biggest plunge since 2010.
“We would characterize the recent market pullback as a textbook correction, after months of low volatility so far in 2024,” said Carol Schleif at BMO Family Office. “The lack of volatility before the past few weeks is unusual, and our current correction is actually quite normal, especially during August, which historically is a volatile time for markets given lighter trading volumes and the summer doldrums.”
As demand for haven assets waned globally, Treasuries fell — with the rise in yields helping smooth a $58 billion auction of three-year notes in afternoon trade. Traders are also moderating expectations of deep Federal Reserve rate cuts this year. Swaps point to around 105 basis points of easing, compared to as much as 150 basis points on Monday.
“The Fed worries about systemic risk in financial markets, not disappointed investors,” said David Donabedian at CIBC Private Wealth US. “Thus, the Fed is unlikely to change its course of action due to a stock market correction. Are we headed for a near term recession, or are markets overreacting? We believe slower growth is unfolding, not a recession.”
The S&P 500 rose to 5,240. Nvidia Corp. jumped 3.8% to lead gains in chipmakers. Both the “Magnificent Seven” gauge of megacaps and the Russell 2000 of small firms added 1.2%. In late trading, Airbnb Inc. slid on a soft outlook. Super Micro Computer Inc. gave a solid sales forecast as corporations invest in the equipment required to run advanced artificial-intelligence tasks.
Treasury 10-year yields jumped 10 basis points to 3.89%. The Japanese yen slipped after a recent surge that saw an unwind of popular carry trades. Bitcoin climbed. Oil fell in early trade Wednesday after an industry report indicated a buildup in US inventories after five weeks of declines.
Other News
Australia’s central bank kept interest rates at a 12-year high and all-but ruled out a rate cut in the next six months, splitting with global counterparts as it waits for inflation to abate.
The Reserve Bank held its cash rate at 4.35% for a sixth straight meeting on Tuesday and lifted its forecasts for inflation and economic growth. In her press conference after the policy decision, Governor Michele Bullock said there’s still a risk that inflation will take too long to return to target and said it’s too early to be talking about imminent easing.
“The market path at the moment is pricing in interest rate reductions by the end of this year,” the governor said. “The board’s feeling is that in the near term, by the end of this year, in the next six months, given what the board knows at the moment and given where forecasts are — that doesn’t align with their thinking about interest rate reductions.”
The currency climbed as much as 0.7% against the dollar after Bullock’s comments. Money markets pared bets on a November rate cut while fully pricing one for December.
The RBA is aiming to bring down consumer prices while holding onto significant employment gains made since the pandemic.
“A largely hawkish hold from the RBA,” said Dwyfor Evans, head of APAC Macro Strategy at State Street Global Markets. “Some of the optimism borne of weaker Q2 inflation has been largely discarded in favor of commentary that continues to see underlying inflation data as ‘too high’.”
“We still consider the RBA as a G10 laggard in terms of normalizing interest rates,” he added.
The decision comes a week after data showed core inflation unexpectedly decelerated in the second quarter and central banks abroad either reduced rates or signaled an intention to do so.
Bullock on Tuesday pointed out that Australia hasn’t hiked as much as its counterparts and underlying CPI is only expected to return to the 2-3% target in late 2025. On Tuesday, the RBA upgraded its forecasts for both core inflation and economic growth, citing stronger demand.
It now sees underlying inflation easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. The gauge is seen falling just shy of the 2.5% target mid-point at the end of the forecast horizon.
