Markets Overview
- ASX SPI 200 futures down 0.9% to 8,210.00
- Dow Average down 0.6% to 44,039.95
- Aussie down 0.6% to 0.6533 per US$
- US 10-year yield rose 12.3bps to 4.4275%
- Australia 3-year bond yield rose 1 bp to 4.11%
- Australia 10-year bond yield fell 1.5 bps to 4.56%
- Gold spot down 0.8% to $2,598.80
- Brent futures up 0.3% to $72.04/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$800 Million 2.5% 2030 Bonds
- 11:30: (AU) 3Q Wage Price Index QoQ, est. 0.9%, prior 0.8%
- 11:30: (AU) 3Q Wage Price Index YoY, est. 3.6%, prior 4.1%
A rally that drove stocks to a series of all-time highs ran out of steam, with Treasury yields soaring and the dollar hitting a two-year high ahead of key inflation data.
Equities edged lower after the S&P 500’s biggest five-day run in a year. Following sizable post-election gains, small caps and banks lost ground. Tesla Inc. dropped after an almost 45% surge. Bitcoin approached $90,000 as traders bet on a boom under President-elect Donald Trump. The dollar rose to its highest since November 2022. Treasury yields climbed, with data expected to show the uneven path of easing price pressures in the home stretch toward the Federal Reserve’s target.
Fed Bank of Minneapolis President Neel Kashkari said he’ll be looking at incoming inflation data to determine whether another rate cut is appropriate in December. To Will Compernolle at FHN Financial, a hot consumer price index and/or strong retail spending could push yields higher if a December rate cut “starts looking imprudent.”
The post-election advance in US stocks could stall as investors start to take profits, according to strategists at Citigroup Inc. led by Chris Montagu. Investor exposure to American shares jumped to the highest since 2013 after the presidential vote amid optimism around stronger economic growth, according to a survey from Bank of America Corp.
“We are on watch for potential profit taking, consolidation, or even correction for US equities heading into the first quarter of the new year,” said Dan Wantrobski at Janney Montgomery Scott. “Upward momentum remains strong and investor sentiment favorable, but stocks are once again overbought/extended across multiple timeframes.”
The S&P 500 fell 0.3%. The Nasdaq 100 dropped 0.2%. The Dow Jones Industrial Average slid 0.9%. The Russell 2000 slipped 1.8%.
Treasury 10-year yields advanced 12 basis points to 4.43%. The Bloomberg Dollar Spot Index rose 0.4%.
The core consumer price index due on Wednesday, which excludes food and energy, likely rose at the same pace on both a monthly and annual basis compared to September’s readings. The overall CPI probably increased 0.2% for a fourth month, while the year-over-year measure is projected to have accelerated for the first time since March.
A survey conducted by 22V Research shows 55% of investors expect the market reaction to CPI to be “mixed/negligible”, 31% said “risk-off” and only 14%, “risk-on.”
Meantime, 48% of investors surveyed by 22V believe that core CPI is on a Fed-friendly glide path without a significant tightening of financial conditions or a recession. However, 44% believe that financial conditions need to tighten. This is the highest value since April.
Scott Kleinman at Apollo Global Management Inc. has warned markets not to get too comfortable with the current trajectory of inflation and interest rates.
“Inflation is not tamed,” Kleinman said in a Bloomberg Television interview on Tuesday. “The Fed can say what it wants. You just have to open your eyes and look around.”
Swap contracts are pricing in about 14 basis points of easing, or about 55% of a quarter-point rate cut on Dec. 18, down from near full certainty at the start of the month.
Other News
Australia’s consumer sentiment rose in November while business confidence jumped to the highest level since early 2023, reflecting ebbing inflation pressures that suggest the next move in interest rates will be a reduction.
A National Australia Bank Ltd. survey showed Tuesday that business confidence climbed 7 points in October after hovering around 0 for an extended period. Conditions, which measure jobs, sales and profitability, remained unchanged.
“While it’s just one month this is an encouraging sign alongside a tentative improvement in forward orders,” said Gareth Spence, head of Australian economics at NAB. “We continue to watch the survey closely – not just for the forward looking and activity indicators, but also capacity utilization which will be key in the evolution in price pressures for the economy.”
The confidence across corporate Australia extended to households, with consumer sentiment climbing 5.3% to 94.6 points, a Westpac Banking Corp. survey showed Tuesday. The index is now up 14.4% from its mid-year lows and closing in on the 100 dividing line between pessimists and optimists.
The data indicate that business and household sentiment are now converging after moving on different tracks for the past two years. This reflects easing worries about further rate increases by the Reserve Bank and greater confidence in the economic outlook.
The consumer survey was carried over the week ending Nov. 9, providing an insight into reactions to both the RBA’s policy decision, where it left the key rate at a 13-year high of 4.35%, and the US election result.
The details showed that consumer sentiment was “markedly higher” at the start of the week with an index reading of 99.7 but posted a sharp fall following Donald Trump’s election victory.
“Whether the strong start, or weaker finish to the week are a better guide depends on how lasting the post-US election drop is expected to be,” said Matthew Hassan, a senior economist at Westpac. “That said, the mood does look to be improving and is providing some more positive signs for retailers ahead of the all-important Christmas high season.”
Household sentiment has been in the doldrums in the post-pandemic period as a surge in inflation prompted the RBA to raise rates; the central bank has pointed to persistent price pressures to justify keeping them elevated even as global counterparts ease.
Consumers are likely jittery after the US election over potential fallout from Trump trying to pressure Beijing with tariffs, given China is Australia’s largest trading partner.
