Markets Overview

  • ASX SPI 200 futures down 0.6% to 7,875.00
  • Dow Average little changed at 39,869.38
  • Aussie down 0.2% to 0.6678 per US$
  • US 10-year yield rose 3.5bps to 4.3750%
  • Australia 3-year bond yield fell 12 bps to 3.84%
  • Australia 10-year bond yield fell 13 bps to 4.19%
  • Gold spot down 0.4% to $2,376.98
  • Brent futures up 0.8% to $83.41/bbl

Economic Events

The world’s largest stock market hovered near its all-time highs, with the Dow Jones Industrial Average touching the historic 40,000 mark on bets that rate cuts will keep powering Corporate America.

Following a series of small twists and turns, equities closed slightly lower as traders digested the gains of the past few weeks. Just as the rest of the market, the oldest of Wall Street’s three main stock indexes had rallied on prospects of a resilient economy, ebbing inflation and robust earnings.

The last time the measure of blue chips broke a major milestone was in November 2020 — when it topped 30,000 — amid market-friendly developments that unleashed animal spirits even as the pandemic continued to rage. This time around, the market is defying the old adage “sell in May and go away,” with equities on pace for their best month in 2024.

The S&P 500 closed below 5,300. Walmart Inc. surged on a bullish outlook as the big-box retailer attracts consumers looking for essentials and discounts. GameStop Corp. and AMC Entertainment Holdings Inc. tumbled as the meme-stock frenzy faded.

Treasury 10-year yields rose four basis points to 4.38%. The dollar bounced back after dropping to a one-month low.

Other News

Australia’s central bank is “closely watching” how the current supply-demand mismatch in the housing market unwinds, while warning “it will not be a quick fix,” Assistant Governor Sarah Hunter said on Thursday.

“Demand pressure, and so upward pressure on rents and prices, will remain until new supply comes online,” Hunter said in a speech in Hobart, Tasmania. “We expect this response to take some time to materialize, given the current level of new dwelling approvals and the information from liaison that many projects are still not viable.”

Australia is facing its worst housing crisis in living memory. Residential building permits per capita are sitting at decade-low levels and there remains a sizable backlog of construction work, largely due to a lack of skilled workers. The government tried to plug a labor supply gap by boosting the number of migrants, only to find that this exacerbated the problem.

The impact of the supply-demand imbalance is visible in both the rental and established housing markets — median rents in Australia hit a record high in April while home prices have been rising despite borrowing costs standing at a 12-year-high of 4.35%.

Soaring costs in the wake of the pandemic also pushed a number of builders with fixed-price contracts into bankruptcy.

Economists expect the RBA will leave its cash rate at current levels until November while money money markets are only fully pricing a first cut next year.

Hunter didn’t comment on monetary policy in her address to the Real Estate Institute of Australia Centennial Congress.

Potential avenues for resolving the imbalances in the housing market include:

  • Average household sizes could increase
  • The pace of growth in construction costs could moderate
  • The RBA’s liaison program shows some developers are seeing strength in underlying demand and expect to respond with new supply