Markets Overview
- ASX SPI 200 futures up 0.4% to 8,482.00
- Dow Average up 0.9% to 44,706.87
- Aussie little changed at 0.6503 per US$
- US 10-year yield fell 13.6bps to 4.2634%
- Australia 3-year bond yield fell 4 bps to 4.04%
- Australia 10-year bond yield fell 6 bps to 4.48%
- Gold spot down 3.3% to $2,625.92
- Brent futures down 2.9% to $73.02/bbl
Economic Events
Stocks climbed with bonds while the dollar fell as traders welcomed Donald Trump’s pick of Scott Bessent for Treasury Secretary, betting the hedge-fund manager will bring a Wall Street mindset to the role.
The S&P 500 briefly topped 6,000 before paring gains. Small caps with typically domestic operations closed within a striking distance of their all-time highs. Treasuries rallied across the US curve, with the move led by longer maturities. Bitcoin slipped after a surge toward $100,000 fizzled just shy of the historic level. Oil sank as Israel moved closer to a cease-fire with Hezbollah.
Markets kicked off the week with a risk-on tone as Bessent has deep familiarity with global financial systems — a trait that made him palatable to investors. And while he’s indicated he’ll back the president-elect’s tariff plans and fight to extend Trump’s tax cuts, Bessent isn’t known as an ideologue, spurring Wall Street expectations that he will prioritize economic and market stability over scoring political points.
“Investors are viewing this nomination as one that will provide a Goldilocks scenario for Mr. Trump’s pro-business proposals,” said Matt Maley at Miller Tabak + Co.
The S&P 500 rose 0.3%. The Nasdaq 100 added 0.1%. The Dow Jones Industrial Average climbed 1%. Big techs were mixed, with Amazon.com Inc. rallying while Nvidia Corp. and Tesla Inc. pushed lower. Macy’s Inc. sank after delaying its earnings as an investigation revealed a worker his millions in expenses.
The yield on 10-year Treasuries declined 14 basis points to 4.26%. The Bloomberg Dollar Spot Index fell 0.5%.
After underestimating the stock market’s strength over the past two years, Wall Street strategists are back to their bullish ways, walking a well-trodden path when it comes to their predictions for where the S&P 500 will go in 2025.
Year-end targets from firms including Goldman Sachs Group Inc., Morgan Stanley, and BMO Capital Markets fall near the 6,600 line. The level represents an advance of about 11.7% from Friday’s close, which happens to be the index’s average full-year gain going back to 1928, taking into account some adjustments.
A year-end rally will push the S&P 500 to 6,200 points, according to Goldman Sachs Group Inc.’s Scott Rubner. Retail euphoria is accelerating just as stocks enter their best seasonal trading pattern. Corporate demand for buybacks is also increasing, adding to the reasons why the rally could start in the coming days, Rubner said in a note to clients on Friday.
At RBC Capital Markets, Lori Calvasina says the S&P 500 is set to reach the 6,600 level by the end of 2025 due to what’s likely to be another year of solid economic and earnings growth, some political tailwinds, and additional relief on inflation.
Her team’s new price target “does bake in the idea that the S&P 500 will experience a 5-10% drawdown before too long.” Elevated positioning, recent froth in sentiment, and higher valuations leave the S&P 500 vulnerable to bad news and perhaps simply in need of a breather.
And Barclays Plc strategists expect further stock-market upside in 2025 amid constructive positioning and a solid macroeconomic backdrop, even though gains are set to slow from the breakneck pace seen this year and last.
The team led by Venu Krishna raised its S&P 500 year-end target to 6,600 from 6,500.
US inflation figures this week that are seen showing stubborn price pressures will reinforce the Federal Reserve’s cautionary posture toward future interest-rate cuts.
The personal consumption expenditures price index excluding food and energy — the Fed’s preferred measure of underlying inflation — is projected to have risen by 0.3% in October from September, and by 2.8% from a year earlier, in what would be the largest advance since April.
Fed Bank of Chicago President Austan Goolsbee told Fox Business he foresees the central bank continuing to lower rates toward a stance that neither restricts nor promotes economic activity.
Other News
Australia’s budget deficit is likely to swell beyond forecasts, in a reversal of previous years when massive revenue upgrades from high iron ore prices ended up returning the books to the black, according to Deloitte Access Economics.
Ahead of next month’s mid-year fiscal review, Deloitte estimates the underlying cash deficit in the 12 months through June 2025 will be A$33.5 billion ($22 billion) compared with A$28.3 billion seen six months ago. That would end consecutive surpluses.
“The structural budget position – that is, what the budget balance looks like after correcting for the swings and roundabouts of the economic cycle – is in deep deficit, meaning that without cyclically serendipitous commodity price booms, a surplus is out of reach,” said Cathryn Lee, an author of the report.
The re-emergence of deficits comes at a politically awkward time for the center-left Labor government: it’s due to hand down the next budget on March 25 and hold an election by May. Unveiling a deteriorating outlook for the books — traditionally seen by Australians as a gauge of economic stewardship — will only add to Labor’s challenges as it slips in opinion polls.
During the current term of the government, the budget updates delivered by Treasurer Jim Chalmers showed A$80 billion in revenue upgrades, on average, Deloitte said. That reflected strong commodity prices and low unemployment.
“The government still deserves credit,” Deloitte’s Lee said. “Most of the ‘unexpected’ revenue which has flowed into federal coffers over the past two years has been saved rather than spent. That has required discipline.”
Yet the structural budget deficit highlights the downside of almost a quarter-century of commodity windfalls. Successive governments have been able to dodge politically risky reforms like reshaping the tax base to offset rising costs.
Deloitte noted that the composition of Australia’s economy means it’s always more exposed to global commodity prices than most other developed economies.
“Even so, building a more resilient federal budget with a firmer structural balance and with better safeguards against commodity price exposure is possible, but it requires change,” Lee said, calling for productivity-boosting economic reform and substantive changes to the tax system.
Still, Australia is better placed fiscally than the US, which recorded a deficit of $1.83 trillion in the fiscal year ended Sept 30. The Committee for a Responsible Budget last month estimated President-elect Donald Trump’s plans would increase the debt by $7.75 trillion more than what’s currently projected through fiscal year 2035.
Chalmers, responding to the report, said he had been warning for some time that budget pressures are building, not easing.
“Deloitte’s report shows that global economic uncertainty like the slowdown in China is a key factor weighing heavily on the budget,” he said in a statement. “Our budget position in the mid-year update will be a bit weaker than what Treasury forecast in May, but still much stronger than what we inherited.”
(Bloomberg)
