Markets Overview
- ASX SPI 200 futures little changed at 7,275.00
- Dow Average down 0.5% to 35,123.36
- Aussie down 0.2% to 0.6529 per US$
- U.S. 10-year yield fell 1.3bps to 4.0101%
- Australia 3-year bond yield little changed at 3.73%
- Australia 10-year bond yield fell 2 bps to 4.00%
- Gold spot down 0.5% to $1,914.92
- Brent futures up 1.4% to $87.39/bbl
Economic Events
- 10:30: (AU) Australia to Sell A$1 Billion 126-Day Bills
- 10:30: (AU) Australia to Sell A$1 Billion 91-Day Bills
- 11:00: (AU) Aug. Consumer Inflation Expectation, prior 5.2%
A slide in big tech and higher energy prices weighed on Wall Street sentiment ahead of inflation data that will help shape the outlook for the Federal Reserve’s next steps.
The S&P 500 closed near session lows and the Nasdaq 100 dropped over 1%.
July’s consumer price index will show a wave of disinflation, but with oil prices rising, the headline number is likely to increase sharply in August, according to Anna Wong at Bloomberg Economics. Still, unless inflation expectations climb substantially, policymakers will remain focused on the core numbers — which should keep moderating as growth slows, she added.
“Risk-on” expectations for Thursday’s CPI data have cooled relative to the last couple of reports, according to a survey conducted by 22V Research. Investors aren’t “risk-off,” but are more ambivalent following a string of good releases. The strong wage data from Friday’s employment data has likely gotten attention, the firm noted.
Even if inflation overshoots expectations, the Fed will likely feel its policy is restrictive enough as manufacturing struggles and the jobs market shows signs of softening, according to Fawad Razaqzada, a market analyst at City Index and Forex.com. That means a “small beat” wouldn’t matter too much, he noted.
“A goldilocks outlook in the US is what stock market investors on Wall Street have been enjoying this year – until the recent weakness,” Razaqzada added. “They will be looking for signs that the health and sentiment of the consumer remains positive, enough not increase the risks of a further Fed rate increase, and yet not too depressing to raise recession alarm bells. Somewhere in between could support stocks.”
Meantime, bond investors wanted the newest Treasury 10-year notes badly enough that they were willing to settle for a yield of less than 4%.
The $38 billion auction was awarded at 3.999%, becoming the third straight 10-year new issue to pay a fixed rate of less than 4%. Since the auction details were announced on Aug. 2, its bigger-than-anticipated size pushed the yield on the new 10-year in pre-sale trading up toward 4.19% on Friday. Ultimately, investors decided they could live on less.
Other News
The “Big Five” consulting firms are unfairly advantaged by limited government contracting, lawmakers said today in a report that also called on public servants to deliver taxpayers better value for money.
Government tenders using pre-selected supplier panels are particularly advantaging the country’s largest consulting firms—Accenture PLC, KPMG LLP, Deloitte LLP, PwC LLP, and Ernst & Young LLP—the parliament’s joint audit committee said Wednesday.
A growing share of government agency contractors are selected from tender supplier panels which limit competition and value for money, it said.
“Procurement is more than a ‘conveyor belt moving Commonwealth money out and goods and services in,’” the committee said in a statement accompanying its latest report. “Yet agencies systemically fail to comply with the rules and demonstrate value for money, lack compliance with ethical requirements, and demonstrate poor record keeping and contract management.”
The Big Five were “big winners” when it came to over $80 billion of government spending on more than 90,000 contracts in fiscal year 2021-22, the statement read.
Of nearly A$2 billion (US $1.3 billion) the firms earned in government contracts in that fiscal period, more than $1.6 billion was for new contracts and over $300 million in contract variations or extensions.
Chair of the cross-party audit committee Julian Hill MP called on the finance department “to ensure that taxpayer dollars are not being wasted as a consequence of poor public sector procurement practices.”
“Sole sourcing is not cool,” the report said. New rules are needed to ensure multiple quotes are obtained, there’s a separate value for money assessment, and tender panels are refreshed more often, it recommended.
Finance Minister Katy Gallagher didn’t immediately respond to a request for comment.
(Bloomberg)
