Markets Overview
- ASX SPI 200 futures up 0.3% to 8,277.00
- Dow Average up 0.3% to 42,313.00
- Aussie up 0.1% to 0.6903 per US$
- US 10-year yield fell 4.5bps to 3.7506%
- Australia 3-year bond yield rose 2.6 bps to 3.53%
- Australia 10-year bond yield rose 1.6 bps to 3.96%
- Gold spot down 0.5% to $2,658.24
- Brent futures up 0.5% to $71.98/bbl
Economic Events
Japanese stocks are set to slump early Monday after ruling party elections raised expectations of further central bank interest rate hikes. Traders will also be closely watching events in the Middle East.
Nikkei 225 futures fell about 6% after the yen surged following Shigeru Ishiba’s victory over dovish opponent Sanae Takaichi in a run-off for the Liberal Democratic Party leadership. Ishiba has said he supports the Bank of Japan’s independence and normalization path in principle, and that the country needs to defeat deflation. The dollar was steady against major peers in early trading.
Australian equity futures point to an early gain, while those in Hong Kong were flat. US contracts were steady after the S&P 500 closed slightly lower on Friday. A gauge of US-listed Chinese shares climbed 4% Friday after China unveiled more stimulus measures.
Markets are showing signs of optimism into the final quarter of the year as signs grow on an improving global economic outlook following China’s measures and as central banks from Indonesia to Europe and the US begin cutting interest rates to support growth. US stocks are set to outperform Treasuries for the remainder of the year, while emerging markets are preferred to developed ones, according to the latest Bloomberg Markets Live Pulse survey.
Sentiment may be dampened however should tensions in the Middle East escalate. Oil edged lower in early trading Monday, as traders await the response to Israel’s killing of Hezbollah chief Hassan Nasrallah in an air strike on the group’s headquarters in Lebanon’s capital Beirut on Friday.
The strike came after the US, France and Arab countries had been trying to deescalate the situation in recent days and prevent an Israeli ground offensive on southern Lebanon, which they fear could trigger a region-wide war.
Iran’s embassy in Beirut said Israel’s strikes are a dangerous escalation and will being about the appropriate punishment. President Masoud Pezeshkian however has stopped short of pledging a direct and immediate attack on Israel in retaliation.
“For markets, it boils down to what Iran decides to do,” Minna Kuusisto at Danske Bank wrote in a note to clients. “A full-blown war in Lebanon would bring another war right at Europe’s doorstep, but markets will ignore human suffering as long as oil trade remains intact.”
US Treasuries rallied Friday as the Fed’s preferred measure of underlying US inflation and household spending rose modestly in August, underscoring a cooling economy. Traders have priced about 72 basis points of easing by year-end, implying a strong chance that the Fed will cut interest rates by 50 basis points at one of the final two meetings this year, according to data compiled by Bloomberg.
Other News
Australia posted back-to-back budget surpluses for the first time in 16 years.
The underlying cash surplus was A$15.8 billion ($10.9 billion) in the 12 months through June 30 this year, or 0.6% of gross domestic product, according to the Treasurer’s office. That exceeded a A$9.3 billion windfall predicted in the May budget.
“Our bigger than expected surplus in the year just gone is entirely due to lower spending, with the tax take also lower,” Treasurer Jim Chalmers said in a statement.
It comes as the center-left Labor government faces an election before the end of May, with recent polling showing mounting discontent as inflation remains stubborn and interest rates stay high.
A Newspoll survey published in the Australian newspaper showed primary support for Labor has dipped to its equal lowest since the 2022 election with housing — including rents and mortgages — emerging as the most significant cost-of-living issue, eclipsing grocery and energy bills.
As many central banks around the world enter a rates-easing cycle, the Reserve Bank of Australia this month held its benchmark at a 12-year high of 4.35%. Governor Michele Bullock has warned rates are unlikely to come down anytime soon, as the central bank waits for inflation to “sustainably” fall into its target bracket of 2-3%.
The last time Australia achieved back-to-back surpluses was in the 2007 and 2008 financial years.
“Posting back-to-back surpluses is a key part of our plan to take pressure off inflation while providing relief to families, who we know are under pressure,” Finance Minister Katy Gallagher said in the statement.
