Markets Overview

  • ASX SPI 200 futures little changed at 7,357.00
  • Dow Average up 0.2% to 35,520.12
  • Aussie down 0.5% to 0.6759 per US$
  • U.S. 10-year yield fell 1.9bps to 3.8668%
  • Australia 3-year bond yield fell 7 bps to 3.90%
  • Australia 10-year bond yield fell 1.9 bps to 4.01%
  • Gold spot up 0.4% to $1,972.26
  • Brent futures down 0.8% to $82.93/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 119-Day Bills
  • 10:30: (AU) Australia to Sell A$1 Billion 91-Day Bills
  • 11:30: (AU) 2Q Import Price Index QoQ, est. -0.8%, prior -4.2%
  • 11:30: (AU) 2Q Export Price Index QoQ, est. -6.7%, prior 1.6%

There was something for every Wall Street bull and bear in Jerome Powell’s remarks Wednesday, but the market finished the day betting the Federal Reserve’s next move will possibly be a skip.

Two-year US yields dropped alongside the dollar. Stocks rebounded from session lows, with the Dow Jones Industrial Average notching its 13th straight advance — the longest winning run since 1987. In late trading, Facebook parent Meta Platforms Inc. climbed after projecting revenue that beat estimates while EBay Inc. fell on a disappointing profit outlook.

The Fed raised rates by 25 basis points to the highest level in 22 years, and Powell said further hikes will be “data dependent” as officials fine-tune their effort to further quell inflation. Swaps referencing future decisions priced in slightly lower odds of another increase this year, which ebbed to 47%.

Other News

Prices of a bond issued by Westpac Banking Corp. almost 40 years ago are spiking on Wednesday, boosting returns over the past four months to more than 50%, as the lender joins a wave of repayments of old-style bank securities.

The bank is planning to redeem the notes in late September, it said in a statement on Wednesday. It will publish a formal notice of redemption before repaying them, Westpac said. Dealers have bumped their prices from around 90 cents on the dollar to about face value, based on data compiled by Bloomberg.

These bonds, nowadays called discounted perpetuals or discos, were issued around the mid-1980s to plug capital requirements. They have mostly lost their regulatory recognition these days but some banks have kept them even as regular funding due to their wafer-thin spreads.

These thin spreads have also kept their prices depressed and some investors had bought them in previous years in anticipation of a big payout if they were repaid.

Several banks have redeemed these bonds in 2023, proving those bets right. HSBC Holdings Plc, Barclays Plc, Standard Chartered Plc and Westpac’s local rival Commonwealth Bank of Australia have triggered big price spikes after announcing the repayment of similar issues earlier this year.

CBA’s note jumped from about 85 cents on the dollar all the way to face value when the lender announced its decision last month. A similar note by ANZ Group Holdings Ltd. rose about 1.5 cents to more than 92 cents on the dollar after Westpac’s announcement.

Just over $352 million of the Westpac notes remain outstanding, based on data compiled by Bloomberg. They’ve returned almost 53% since HSBC’s decision in April, beating returns in all other bonds in the global investment-grade corporate bond index and all but three stocks on the S&P 500, data compiled by Bloomberg show.

(Bloomberg)