Markets Overview
- ASX SPI 200 futures little changed at 8,539.00
- Dow Average up 1.2% to 43,089.02
- Aussie up 0.4% to 0.6489 per US$
- US 10-year yield fell 5.3bps to 4.2945%
- Australia 3-year bond yield fell 6.5 bps to 3.27%
- Australia 10-year bond yield fell 6.3 bps to 4.15%
- Gold spot down 1.3% to $3,323.17
- Brent futures down 5.2% to $67.79/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$1 Billion 3.5% 2034 Bonds
- 11:30: (AU) May CPI YoY, est. 2.3%, prior 2.4%
- 11:30: (AU) May CPI Trimmed Mean YoY, prior 2.8%
Stocks in Asia are set for a cautious open as the Israel-Iran truce appeared to hold and Federal Reserve Chair Jerome Powell gave balanced comments on prospects for rate cuts.
Futures indicated gains in Hong Kong, and little change in Sydney and Tokyo. The S&P 500 rose 1.1% and the Nasdaq 100 climbed 1.5% on Tuesday, notching its first record since February, while an index of US-listed Chinese shares gained the most in more than a month. Treasury yields and the dollar fell.
Oil snapped two days of heavy losses in early Asia trading as an industry report indicated US inventories fell again last week, with West Texas Intermediate crude up more than 1%. It declined 6% on Tuesday as Israel and Iran appeared to be honoring a ceasefire brokered by Donald Trump after the president lashed out at both sides for early breaches.
Powell’s remarks before the House Financial Services Committee came on the heels of the Fed’s decision last week to stay on hold. He reiterated his view that policymakers need not rush to adjust policy, a counter to recent statements from Fed Governors Christopher Waller and Michelle Bowman that signaled the two would be open to lowering rates as soon as July. Money markets fully priced in two Fed cuts by the end of 2025, with a first move in September far more likely than next month — though bets on a July reduction edged up from last week.
“If it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates, sooner rather than later,” Powell told lawmakers in response to a question about the possibility of a July move. “But I wouldn’t want to point to a particular meeting. I don’t think we need to be in any rush because the economy is still strong.”
To Andrew Brenner at NatAlliance Securities, Powell was unable to “convince markets of hawkishness.”
“The markets are telling Powell that he will be lowering rates much more quickly than he portrayed today,” Brenner noted. “We just don’t know about July. We would need a weak payroll report.”
Traders continued to keep a very close eye on Middle East developments. Trump on Tuesday surprised both oil traders and officials in his own government by appearing to undermine years of US sanctions on Iran, giving its biggest customer China the green light to carry on buying the Islamic Republic’s oil as he seeks to bolster the ceasefire with Israel.
“Markets are finally breathing again,” said Haris Khurshid, chief investment officer at Karobaar Capital. “The easing in Middle East tensions, paired with Powell striking a more flexible tone, is giving equities room to run and volatility a much-needed pause.”
At Evercore, Krishna Guha says a “balanced Powell” kept the focus on a September, not a July move.
“For us, the most interesting takeaway was his comment that ‘a couple of cuts or maybe more’ would put the Fed back at neutral,” Guha said. “The sense that policy is only ‘modestly’ restrictive helps justify holding here while the Fed learns more on the tariff impact on both inflation and employment.”
Fed Bank of Minneapolis President Neel Kashkari said officials need more clarity on how tariffs will impact prices even as recent inflation data has been “quite positive.” His New York counterpart John Williams said it’s “entirely appropriate” to hold rates to analyze impacts of policy changes. Fed Governor Michael Barr said he anticipates tariffs will drive up inflation and expressed support for a wait-and-see approach on rates.
Fed Bank of Cleveland chief Beth Hammack said policymakers may hold borrowing costs steady for some time. Meantime, Boston Fed President Susan M. Collins said the modestly restrictive stance is necessary.
Powell also said potential changes to a key capital buffer should bolster banks’ roles as intermediaries in the Treasury market.
Bill Gross has bad news for Treasury bulls, and good news for stock investors.
The billionaire investor warned that the 10-year Treasury yield will struggle to dip below 4.25% as ballooning fiscal deficits and a weaker dollar conspire to keep inflation elevated. On the flipside, according to Gross, equity markets are likely to continue to grind higher driven by the sheer power of the artificial-intelligence era.
“I suggest a ‘little bull market’ for stocks and a ‘little bear market’ for bonds,” the co-founder of Pacific Investment Management Co. wrote in an X post on Tuesday. “Stocks are AI dominated and continue to suggest 1-2% economic growth.”
