Markets Overview
- ASX SPI 200 futures down 0.3% to 8,420.00
- Dow Average down 0.3% to 44,642.52
- Aussie down 0.9% to 0.6392 per US$
- US 10-year yield fell 2.3bps to 4.1529%
- Australia 3-year bond yield little changed at 3.81%
- Australia 10-year bond yield fell 1.4 bps to 4.22%
- Gold spot little changed at $2,633.37
- Brent futures down 1.3% to $71.12/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$1 Billion 2.75% 2029 Bonds
Asian stocks were poised for a mixed opening on Monday as traders grappled with continued political upheaval in South Korea and as investors awaited signs of fresh stimulus from Beijing. Oil will be closely watched after the Syrian government was toppled.
Equity futures in Australia and Hong Kong fell while those in Japan and mainland China climbed. US stocks advanced on Friday with the S&P 500 notching its 57th record close as a monthly jobs report indicated the labor market is cooling enough to allow the Federal Reserve to cut interest rates this month. The dollar was steady against major peers in early trading.
Investors are readying themselves this week for a final flurry of central bank decisions across four continents, a key meeting of Chinese officials and US inflation data in an effort to pad returns for the year and help guide positions into 2025. A gauge of global stocks has returned more than 20% this year, on track for a second straight outsized return, according to data compiled by Bloomberg.
“It will be a lively week ahead with event risk all over the shop,” Chris Weston, head of research at Pepperstone Group Ltd. in Melbourne wrote in a note to clients. “A hot US CPI print may not necessarily derail a cut at next week’s FOMC meeting” but it may effect the outlook for further easing and move the dollar.
In Asia, South Korean assets may move as some lawmakers push for President Yoon Suk Yeol to resign amid mounting public anger of the brief imposition of martial law last week. Opposition lawmakers said they would push for another impeachment vote on Yoon after the first one failed.
Meanwhile, the People’s Bank of China’s daily fixing of the yuan will be parsed after the central bank signaled support for the currency through a series of strong fixings last week. That comes ahead of consumer and producer price data that may point to sluggish demand in the world’s second largest economy and add to expectations of more fiscal support following the Central Economic Work Conference.
“There is a reasonable case to be made that China may have been keeping its powder dry pending US trade policy changes from January,” Barclays strategists led by Themistoklis Fiotakis write in a note to clients. Given there’s scope for some dollar easing, “yuan depreciation pressures should also ease temporarily given PBOC resistance at about 7.30” per dollar.
Traders will also be monitoring oil after Saudi Arabia cut prices for buyers in Asia by more than expected after OPEC+ further delayed a lift to production. Moves could be tempered as markets assess the fallout from the toppling of Syrian President Bashar al-Assad’s government by opposition groups, a major blow to key backers Russia and Iran which may reshape the region as conflicts persist.
Treasuries extended their recent rebound on Friday, with investors getting a reprieve from a selloff that crested in November as Donald Trump’s presidential victory raised inflation risks. Since then, however, yields have drifted lower on speculation the Fed will ease policy again at this month’s gathering, its last before Trump takes office, as it tries to steer the economy to a soft landing.
In response to possible tensions between the incoming administration and the US central bank, Trump told NBC’s Meet the Press on Sunday that he has no plans to replace Fed Chair Jerome Powell once he returns to the White House. Markets are now pricing a roughly 80% chance the Fed cuts at its December meeting, though officials have cautioned on the pace of further cuts.
The Fed’s projections already offer a gradual pace of easing “yet even slower cuts and potentially a pause could be warranted,” Societe Generale economists including Klaus Baader wrote in a note to clients. “We expect a 25 basis-point rate cut at the December FOMC meeting but even that is dependent on upcoming CPI.”
Elsewhere this week, Australia’s central bank will likely keep its key interest rate on hold amid indications the nation’s economy is beginning to soften. The European Central Bank, Bank of Canada and Swiss National Bank are all expected to ease policy, while the Brazilian central bank may hike to arrest inflation pressures.
Other News
Australia’s banking regulator is pushing ahead to scrap the market for contingent convertible securities, despite some concerns, becoming the first country to phase out the securities that were wiped out after the collapse of Credit Suisse last year.
The Australian Prudential Regulation Authority said Monday it will phase out the use of Additional Tier 1 capital instruments with what it says should be cheaper and more reliable forms of capital that would absorb losses more effectively in times of stress. APRA will finalize changes before the end of next year, with the updated framework coming into effect from January 2027.
“Feedback was generally supportive of APRA’s proposal, with most respondents agreeing that AT1 does not meet the regulatory objectives of stabilizing a bank experiencing financial stress or supporting resolution to prevent a disorderly failure,” according to the statement.
ATI bonds were introduced in the aftermath of the global financial crisis to prevent taxpayers from picking up the cost for a bank’s failure. They are the lowest rung of bank debt, producing strong returns in good times. They became controversial after $17 billion of the securities were completely written off when UBS Group AG rescued Credit Suisse in 2023.
“Some submissions did raise concerns with phasing out AT1, noting a range of impacts including investors losing access to AT1 as an investable product. APRA acknowledges these concerns but remains of the view that AT1 does not do effectively what it is intended to do: absorb losses while the bank is a going concern and support resolution.”
The market is worth roughly A$40 billion ($26 billion). Australia’s big four banks each hold AT1 bonds equal to at least 1.5% of their risk-weighted assets. Under the new guidelines, they will be able to replace those bonds with 1.25% tier 2 capital and 0.25% common equity tier 1 capital. Smaller lenders would be able to fully replace AT1 with tier 2 instruments.
(Bloomberg)
