Markets Overview

  • ASX SPI 200 futures down 1.1% to 8,219.00
  • Dow Average down 1.1% to 42,966.75
  • Aussie down 1.5% to 0.6242 per US$
  • US 10-year yield rose 8.6bps to 4.4841%
  • Australia 3-year bond yield fell 3 bps to 3.81%
  • Australia 10-year bond yield fell 1.6 bps to 4.28%
  • Gold spot down 1.6% to $2,605.58
  • Brent futures little changed at $73.14/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 84-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 140-Day Bills
  • 11:00: (AU) Dec. Consumer Inflation Expectation, prior 3.8%

The Federal Reserve’s waning enthusiasm for rate cuts jarred US markets Wednesday, sending stocks lower and pushing Treasury yields and the dollar sharply higher. It was the worst loss for the S&P 500 on the day of a rate decision since 2001.

The S&P 500 fell below the 6,000 level, suffering its worst session since August. The tech-heavy Nasdaq 100 dropped 3.6%, the most in five months. Micron Technology Inc. fell postmarket after reporting earnings.

The policy-sensitive two-year US Treasury yield surged 10 basis points to 4.35% and the 10-year rate rose to a level last seen in May. Bloomberg’s gauge of the dollar jumped to its highest since November 2022.

While Jerome Powell delivered a widely expected quarter-point rate cut following a meeting of the Federal Open Market Committee, the central bank signaled increasing wariness around inflation, including a reduction in how far members expect easing to go in 2025. Powell reemphasized that the central bank would be more cautious as it considers further adjustments to the policy rate and said the Fed is committed to reaching its 2% target.

“We need to see progress on inflation,” Powell said. “That is how we are thinking about it. It is kind of a new thing. We moved quickly to get to here but moving forward we are moving slower.”

The velocity of Wednesday’s drop befit the speed with which the Fed’s pivoted back to an inflation-leery posture. Before the latest session, the S&P 500 had surged more than 10% since the FOMC’s July 31 rate decision, at which the central bank dropped its one-sided risk assessment and said keeping the labor market expanding had become a bigger priority.

In Wednesday’s briefing, the chair also said some policymakers had begun to incorporate into their forecasts the potential impact of higher tariffs that President-elect Donald Trump may implement. But he said the impact of such policy proposals was at this point highly uncertain.

Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove’s clothing.”

“Despite playing down the recent slowdown in disinflation while boasting about the strength of economic momentum, he still hinted that tariffs won’t be written off as transitory and that the two-cut forecast for 2025 is necessary because policy must remain restrictive,” he said.

Whitney Watson of Goldman Sachs Asset Management expects the Fed to skip a rate cut in January before resuming on its easing path in March.

“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions at the firm, said.

Other News

ANZ Group Holdings Ltd. withdrew some more of outgoing Chief Executive Officer Shayne Elliott’s compensation after acknowledging a resolution was likely to be voted down by shareholders at its annual general meeting.

The Australian bank has faced calls from proxy firms and a pensions fund body for Elliott to take a further hit to compensation amid a series of scandals in the firm’s markets division. The AGM takes place in Melbourne on Thursday.

“We received majority support from shareholders to grant our CEO his longterm variable remuneration, however a substantial proportion of shareholders voted against the resolution,” ANZ Chairman Paul O’Sullivan said in a statement. “In recognition of shareholder views, to limit the impact on the bank and to allow it to move forward, Shayne has decided to forfeit this year’s long-term variable remuneration,” he said.

(Bloomberg)