Markets Overview
- ASX SPI 200 futures up 0.6% to 8,586.00
- Dow Average up 0.9% to 43,386.84
- Aussie up 0.5% to 0.6546 per US$
- US 10-year yield fell 5.1bps to 4.2397%
- Australia 3-year bond yield fell 0.3 bps to 3.23%
- Australia 10-year bond yield fell 1.4 bps to 4.11%
- Gold spot down 0.1% to $3,328.03
- Brent futures up 0.1% to $67.75/bbl
Economic Events
Asian stocks were set to advance after a gauge of global equities touched a record high Thursday on calming geopolitical concerns and increased expectations for Federal Reserve rate cuts this year.
Equity index futures in Japan, Australia and Hong Kong were all higher early Friday after the S&P 500 advanced 0.8% to within striking distance of a new high. The Nasdaq 100 achieved the feat after rising 0.9%, helping MSCI’s global shares index to a record high. Contracts for US equities edged higher early Friday.
Treasuries rallied across the curve as traders increased expectations for Fed cuts. The swaps market has fully priced two further rate reductions this year and on Thursday increased expectations for a third.
“The stock market is back at record highs as various uncertainties start to fade,” said Paul Stanley at Granite Bay Wealth Management. “The market is betting on continued progress on trade, and a de-escalation of tensions in the Middle East is giving investors confidence.”
The moves were driven by US economic data that supported the case for policy easing. Consumer spending grew in the first quarter at the weakest pace since the onset of the pandemic. As a result, gross domestic product slid at a downwardly revised 0.5% annualized rate. Recurring applications for unemployment benefits rose to the highest since 2021 — but initial claims fell.
An index of the dollar weakened Thursday as US yields fell. The decline supported the yen and a third daily advance for a gauge of emerging markets currencies. West Texas Intermediate, the US oil price, rose 0.5% Thursday, its smallest swing this week, in a sign of relative calm in the Middle East.
The cross-asset moves show that investors are looking beyond the near-term volatility spurred by tariffs and war to instead focus on central bank policy and the health of the US economy. After markets closed in New York on Thursday, US Commerce Secretary Howard Lutnick said the US and China had finalized an understanding on trade following talks last month.
Stock-market volatility is likely to remain higher in the second half of the year given lingering macro and policy uncertainty, according to Goldman Sachs Group Inc. strategists. The team led by Andrea Ferrario says stagflationary shocks remain a key risk for balanced portfolios amid tariff-induced inflation risks.
Meanwhile, the Treasury Department announced a deal with G-7 allies that will exclude US companies from some taxes imposed by other countries in exchange for removing the “revenge tax” proposal from President Donald Trump’s tax bill.
In Asia, economic data set for release includes retail sales and Tokyo inflation for Japan, trade for the Philippines and industrial profits in China. Markets are closed in Indonesia and Malaysia.
A flurry of Fed officials this week made clear they’ll need a few more months to gain confidence that tariff-driven price hikes won’t raise inflation in a persistent way.
In an interview on Bloomberg Surveillance, San Francisco Fed chief Mary Daly acknowledged she’s seeing increasing evidence that tariffs may not lead to a large or sustained inflation surge. But that merely made her open to a rate cut “in the fall.”
Richmond Fed President Tom Barkin said he expects tariffs will put upward pressure on prices, and the central bank should wait for more clarity before adjusting rates. Fed Bank of Boston President Susan Collins said she sees at least one cut this year, but indicated July would be too early for such a move.
Economists see the personal consumption expenditures price index excluding food and energy — the Fed’s preferred gauge of underlying inflation — rising 0.1% in May. That would mark the tamest three-month stretch since the pandemic five years ago.
“The market seems to be riding high on hopes inflation is cooling and the Fed can start cutting soon, and a soft PCE print could seal that story,” said Haris Khurshid, chief investment officer at Karobaar Capital. “But if growth doesn’t pick up or earnings disappoint, this rally could run out of steam fast.”
