Markets Overview
- ASX SPI 200 futures up 0.2% to 8,499.00
- Dow Average down 0.4% to 44,400.40
- Aussie down 0.1% to 0.6287 per US$
- US 10-year yield rose 10.0bps to 4.6351%
- Australia 3-year bond yield rose 5.6 bps to 3.87%
- Australia 10-year bond yield rose 7.4 bps to 4.46%
- Gold spot little changed at $2,898.38
- Brent futures down 2.3% to $75.21/bbl
Economic Events
- 10:30: (AU) Australia to Sell A$2 Billion 133-Day Bills
- 10:30: (AU) Australia to Sell A$2 Billion 84-Day Bills
- 11:00: (AU) Australia to Sell A$150 Million 2.5% 2030 Inflation-Linked…
- 11:00: (AU) Feb. Consumer Inflation Expectation, prior 4.0%
Wall Street traders sent bond yields soaring after hot inflation data spurred bets the Federal Reserve won’t have much room to cut rates, though stocks pared most of Wednesday’s losses as tech buyers stepped in. Oil sank as the US agreed with Russia to begin talks on ending the war in Ukraine.
Treasury 10-year yields soared the most since Dec. 18 when hawkish Fed signals rattled trading. Money markets are now projecting the first – and only – US rate reduction late this year. Almost every major group in the S&P 500 fell, though the gauge trimmed most of a 1.1% slide as Tesla Inc. led gains in megacaps and Meta Platforms Inc. rose for an 18th straight session. For the first time since November, the Nasdaq 100 erased an intraday loss of 1%. In late hours, Cisco Systems Inc. jumped on an upbeat sales forecast.
US inflation picked up broadly at the start of the year, with the monthly consumer price index rising in January by the most since August 2023. Fed Chair Jerome Powell said the latest CPI shows that while the central bank has made substantial progress toward taming inflation, there is still more work to do, “so we want to keep policy restrictive for now.”
“Higher-for-longer may have just gotten a little longer,” said Ellen Zentner at Morgan Stanley Wealth Management. “The Fed has been waiting for clear signs that inflation is trending lower again, and this morning they got the opposite. Until that changes, the markets are going to have to remain patient about additional rate cuts.”
“The bond market didn’t,” he said. “One feature of the current equity market seems to be this mantra: ‘Every dip is a buying opportunity. The bigger the dip, the bigger the opportunity’.”
Sosnick notes that in a way stocks can be a hedge against modest inflation, since earnings per share are measured in nominal terms. Inflation raises those nominal results, particularly for companies with relatively inelastic demand for their products, he added.
“The largest tech stocks fit that bill, at least while the enthusiasm for all things related to artificial intelligence continues,” he noted. “And thus, the dips get bought, even with a hot, hot, hot inflation report.”
The S&P 500 fell 0.3%. The Nasdaq 100 rose 0.1%. The Dow Jones Industrial Average slid 0.5%.
The yield on 10-year Treasuries advanced nine basis points to 4.62%. Bonds did not move much in response to a weak $42 billion US auction that saw the highest coupon rate since 2007. The Bloomberg Dollar Spot Index was little changed.
West Texas Intermediate crude fell 2.7% to $71.35 a barrel. Gold was little changed.
Other News
Commonwealth Bank of Australia’s profit met analyst estimates as strength in its key home lending business offset concern from Chief Executive Officer Matt Comyn that economic conditions remain fragile.
Cash profit from continuing operations came in at A$5.13 billion ($3.23 billion) in the six months ended Dec. 31, the country’s biggest bank said in a statement Wednesday, broadly in line with analyst expectations.
Australia’s biggest lenders are facing a transition phase, with the nation’s central bank potentially on the cusp of moving to a cycle of interest rate cuts that could weigh on margins. That comes at a time of intense competition for mortgages and a deteriorating outlook for the economy.
“The Australian economy has slowed considerably, with cost of living pressures continuing to weigh on consumer demand and younger customers in particular making real sacrifices,” Comyn said in the statement. “Private sector growth is weak, immigration is starting to slow and geopolitical uncertainties remain.”
The firm’s shares added 0.9% as of 12:12 p.m. in Sydney and are on course for a record closing high. They remain up about 41% over the past year and the bank’s price-earnings valuation leaves it as one of the most expensive in the world. Commonwealth Bank accounts for about a quarter of all the nation’s mortgages.
Citigroup Inc. analyst Brendan Sproules said “expectations have run hard into this result and we don’t see anything to justify the recent share price run.”
Consumers in arrears to the bank remained stable, thanks partly to changes to the nation’s top tax brackets, with the majority of home borrowers ahead on their repayments, according to the Commonwealth Bank statement. Expenses continued to grow, largely due to outlays for its ongoing investment in technology, including generative artificial intelligence and data infrastructure.
The lender will pay an interim dividend of A$2.25 per share. Meantime, strength in business banking growth endured, an increasingly key area of focus alongside its giant mortgage book.
“Our balance sheet settings remain strong, with surplus capital and conservative funding, provisioning and interest rate risk settings,” Comyn said.With an election looming in Australia and a focus on weak productivity in the economy and the high cost of living, access to housing remains an issue for many people who can’t afford to buy a home.
With an election looming in Australia and a focus on weak productivity in the economy and the high cost of living, access to housing remains an issue for many people who can’t afford to buy a home.
“Housing in Australia is an issue of great concern and will no doubt be one of the dominant themes for many years,” Comyn said on a call with reporters Wednesday. “Productivity growth will also be critical and is the only path to grow standards of living over time for all Australians.”
