Markets Overview
- ASX SPI 200 futures up 0.2% to 8,743.00
- Dow Average down 0.1% to 44,111.74
- Aussie little changed at 0.6473 per US$
- US 10-year yield rose 1.8bps to 4.2100%
- Australia 3-year bond yield fell 9 bps to 3.37%
- Australia 10-year bond yield fell 9 bps to 4.23%
- Gold spot up 0.2% to $3,380.76
- Brent futures down 1.6% to $67.69/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$900 Million 4.25% 2036 Bonds
Stocks wiped out gains after data showed weakening US services amid sticky price pressures, raising concern about the Federal Reserve’s policy challenges. Short-dated Treasuries underperformed. Oil sank as Russia was said to mull an air-truce with Ukraine.
Following a rally that put S&P 500 on the brink of all-time highs, the benchmark lost steam. A gauge of chipmakers slid more than 1%. In late hours, Advanced Micro Devices Inc. gave a stronger-than-expected sales forecast, but warned that its access to the crucial China market remains uncertain. Super Micro Computer Inc. tumbled after its results missed expectations.
A soft $58 billion sale of three-year notes kicked off a trio of US auctions this week. The yield on 10-year Treasuries was little changed at 4.20%, while those on two-year notes rose four basis points to 3.72%.
“We expect further choppy trading to persist in the later stages of summer, especially as the path of interest-rate policy remains unknown and highly sensitive to incoming economic data,” said Chris Senyek at Wolfe Research.
The US services sector stagnated as firms — faced with tepid demand and rising costs — reduced headcount. Data out last week showed weaker-than-expected jobs data while inflation-adjusted consumer spending barely rose.
“It is difficult to see how price pressures will stick if employment is cooling,” said Neil Dutta at Renaissance Macro Research. “Demand is not going to be strong enough for households to absorb the price increase. This is why an insurance cut makes sense.”
President Donald Trump told CNBC that Treasury Secretary Scott Bessent said he did not want to be nominated to replace Jerome Powell as the next Fed chair. Trump also said that US tariffs on semiconductor and pharmaceutical imports would be announced “within the next week or so.”
The Institute for Supply Management’s index of services declined last month to 50.1, below all estimates in a Bloomberg survey of economists. The employment index contracted. The group’s measure of prices paid for materials and services climbed to the highest since October 2022.
To Ian Lyngen at BMO Capital Markets, the inflation component was more troubling. Nonetheless, the payrolls report has still paved the way for a September rate cut, he noted.
“The ISM services survey highlights the challenges for the Fed in the coming months, with the activity and employment indicators weakening even as the prices paid index rose to a new cyclical high,” said Alexandra Brown at Capital Economics.
The latest labor data is weak enough for the Fed to justify cutting interest rates, said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. Her firm’s base case remains that the US central bank will resume rate cuts at the September meeting, with a total of 100 basis points of easing by early 2026.
