Markets Overview
- ASX SPI 200 futures up 0.8% to 8,320.00
- Dow Average down 0.2% to 43,857.75
- Aussie down 0.2% to 0.6472 per US$
- US 10-year yield fell 3.8bps to 4.4118%
- Australia 3-year bond yield fell 1.1 bps to 4.21%
- Australia 10-year bond yield rose 2.9 bps to 4.70%
- Gold spot up 0.1% to $2,576.56
- Brent futures up 0.4% to $72.54/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$700 Million 4.75% 2027 Bonds
- 11:30: (AU) RBA’s Jones-Panel
Stocks extended losses after Jerome Powell signaled the Federal Reserve is in no rush to cut rates as the economy is holding up.
The equity market closed near session lows, US two-year yields spiked and the dollar climbed after Powell’s remarks. Traders dialed back bets on a December rate reduction to around 55% — from 80% in the previous day.
“Powell’s speech was hawkish,” said Neil Dutta at Renaissance Macro Research. “I think they will still cut in December since policy remains restrictive and they want to get to a neutral setting. That said, on the economy, I think Powell (and the broader consensus) is complacent. There is more downside risk in the near-term than is being appreciated.”
To Quincy Krosby at LPL Financial, while it’s expected that the last mile towards price stability will be bumpy, Powell reminded markets that once again the Fed will not deliver the series of rate cuts they want, unless of course the labor market deteriorates.
Several policymakers have urged a cautious approach to further rate cuts in comments this week, in light of a strong economy, lingering inflation concerns and broad uncertainty. Their comments come at a time when the equity market is showing signs of fatigue following a post-election surge that spurred calls for a pause, with several measures highlighting “stretched” trader optimism.
The S&P 500 dropped 0.6%. The Nasdaq 100 slipped 0.7%. The Dow Jones Industrial Average lost 0.5%. Automakers like Tesla Inc. and Rivian Automotive Inc. slumped as Reuters reported President-elect Donald Trump plans to eliminate the $7,500 consumer tax credit for electric-vehicle purchases. Walt Disney Co. jumped on a profit beat.
Treasury two-year yields rose seven basis points to 4.36%. The Bloomberg Dollar Spot Index added 0.3%.
Equities lost steam after a strong post-election rally that reflected optimism that Trump’s agenda would support corporate growth.
While many investors seem reluctant to sell just yet, caution is warranted, according to Fawad Razaqzada at City Index and Forex.com. The S&P 500 is clearly overbought by several metrics, signaling that a correction or consolidation may be due, he noted.
“Although a full-fledged selloff appears unlikely without the index first breaking multiple support levels, current conditions suggest a modest pullback may be in order for the S&P 500,” Razaqzada added. “For seasoned traders, a short-term pullback could offer buying opportunities, though a clear trend reversal signal has yet to emerge.”
The S&P 500 may reach 6,100 before year-end amid enthusiasm over the Republican sweep of the White House and Congress, but pushing beyond that level may be challenging in the near term, according to Mike Wilson at Morgan Stanley. The gauge closed at 5,949.17 Thursday.
The market may be pressured by any backup in benchmark borrowing rates, or expectations of less aggressive monetary easing by the Fed, Wilson said in an interview to Bloomberg Television, adding that pullbacks will probably be seen as buying opportunities.
