Markets Overview
- ASX SPI 200 futures up 0.9% to 9,011.00
- S&P 500 up 1.5% to 6,466.91
- Dow Average up 1.9% to 45,631.74
- Aussie up 1.2% to 0.6496 per US$
- US 10-year yield fell 7.4bps to 4.2537%
- Australia 3-year bond yield rose 2.5 bps to 3.41%
- Australia 10-year bond yield rose 3.6 bps to 4.31%
- Gold spot up 1.0% to $3,371.86
Brent futures little changed at $67.73/bbl
Economic Events
Equities in Asia were set to track Wall Street higher Monday after Federal Reserve Chairman Jerome Powell opened the door to a resumption of rate cuts next month.
Futures indicated stocks may climb in early Asian trading after the S&P 500 jumped 1.5% on Friday. US equity futures were steady Monday while gold held its 1% gain from the previous session. The Nasdaq Golden Dragon China Index rose 2.7%.
Policy sensitive two-year Treasury yields tumbled as much as 12 basis points on Friday as traders priced an 84% chance the Fed will reduce borrowing costs at its next meeting. A gauge of dollar strength fell 0.8%, notching a third straight weekly loss.
On Friday, Chair Jerome Powell used his keynote speech at the Fed’s Jackson Hole symposium to signal the central bank may not wait for a perfect inflation reading before easing as the jobs market softens. Still, officials were divided over the outlook for rates, warning of continued price risks from US trade tariffs heading into this week’s key inflation reading.
“The question for traders early this week is whether to chase Friday’s rally in risk and the US dollar downside,” Chris Weston, head of research at Pepperstone Group in Melbourne, wrote in a note to clients. “While the risk of Powell getting this one wholly wrong perhaps reinvigorates the case to own gold, the fact that he has cemented the Fed Put should see support for risk continuing.”
In Asia, Chinese stocks will be in focus with questions mounting over how much further the market can rally with concerns of trade tariffs and a deep-rooted property crisis weighing on the economy. While the market’s steady advance may suggest less risk of a sudden correction, some analysts are warning that a bubble is in the making.
“Markets might be expecting, either correctly or incorrectly, that macroeconomic fundamentals will improve,” said Homin Lee, senior macro strategist at Lombard Odier Ltd. in Singapore. “But a bull market will not be sustainable if inflation remains close to 0% and corporate pricing power faces severe headwinds from weak domestic demand.”
Elsewhere, the leaders of Japan and South Korea met on Saturday and pledged to enhance cooperation between the two countries, saying economic and security challenges require them to step up bilateral relations. South Korean President Lee Jae Myung heads to the US next to meet President Donald Trump.
Sentiment was weak heading into Friday, with the S&P 500 falling for five straight sessions, its longest losing streak since January, as Wall Street pulled back on bets that the Fed was about to reduce borrowing costs. Powell’s comments halted those concerns, sending the S&P 500 soaring to its best day since May.
However, Powell, in what was likely his final Jackson Hole speech at the helm of the Fed, detailed the cloudy signals coming from the economy.
While the effect of tariffs on prices is now visible, there are still questions about whether that will reignite inflation in a more persistent way, he said. He called the labor market’s current status — with both falling demand for, and declining supply of workers — “curious.”
