Staff writers
The Australian sharemarket is set to start the new trading week on a cautious note, with futures indicating a flat open ahead of the Reserve Bank’s likely decision to raise interest rates to a 15-year-high on Tuesday, followed by key inflation figures on Wednesday.
ASX futures were up just 3 points, or 0.03 per cent, at 8720 on Saturday. The local bourse fell to a three-month low on Friday, finishing its fourth losing week in a row as oil prices and bond yields both moved higher amid expectations local interest rates will join them and rise this week. The Australian dollar was flat at US70.16¢ shortly after 6am AEST.
The Australian sharemarket has now wiped out all its gains for the year amid consistent concerns about inflation as the Iran war is fuelling energy costs, with the fallout trickling through the wider economy. Meanwhile, Australian government bond yields earlier this month hit a 15-year peak as investors demanded higher returns for holding government debt, tracking similar moves overseas and putting further pressure on share prices.
The Reserve Bank is widely expected to make its fourth rate hike of the year on Tuesday, raising the cash rate to 4.6 per cent to address the sticky inflation. Markets are pricing in another hike early next year, bringing more pain to households that have experienced a series of economic setbacks since the global financial crisis. The inflation rate for August will be released on Wednesday.
“Ultimately, investors are swimming in three major cross currents: Solid demand and robust corporate profits, geopolitical risk and monetary policy uncertainty,” said Kyle Rodda at Capital.com. “Corporate profitability is providing the floor supporting the market while geopolitical and policy uncertainty are creating a ceiling.”
Oil prices could resume their rally this week as US President Donald Trump over the weekend sent mixed signals about his willingness to reach a peace deal with Iran. Iran stuck to its seven-day proposal for reopening the crucial Strait of Hormuz, which has been knocked back by Trump. The conditions Iran wants are something Washington might have agreed to about a year ago, the US president told Axios in an interview on Sunday, saying Tehran has overplayed its hand. But he expects negotiations to resume this week.
On Wall Street on Friday, a cooldown in oil prices had helped release some of the pressure that’s built up on the US sharemarket, helping it close out its first winning week in the last three.
The S&P 500 added 0.5 per cent to break a three-day losing streak marked by big swings due to rising yields in the bond market. Despite the week’s uneasiness, the main measure of the US stock market’s health pulled back within 0.7 per cent of its all-time high set last month. The Dow Jones Industrial Average added 0.9 per cent, and the Nasdaq composite climbed 0.5 per cent.
Stocks got a boost after the price for a barrel of Brent oil dropped 2.8 per cent to $US97.44 per barrel. It’s been yo-yoing on uncertainty about when the war with Iran will allow oil to flow freely again from the Middle East. Prices go down when hopes rise for a possible deal to fully reopen the Strait of Hormuz to oil tankers, and they go up when doubts resurface.
But trading was shaky again on Wall Street on Friday, particularly after a report on US consumer sentiment sent Treasury yields higher in the morning.
The report from the University of Michigan said US consumers are bracing for inflation of 4.6 per cent in the coming year, up from their forecast of 4 per cent the month before. It also said that overall sentiment among consumers was not as bad as economists expected, even if it was the lowest in four months.
The rising expectations for high inflation are potentially dangerous for the world’s largest economy because they could encourage behaviour that leads to a vicious cycle that makes the cost of living spiral even higher.
Some consumers told the survey that buying some kinds of products now would help them avoid higher prices in the future. If many rush to make such purchases at the same time, it could encourage sellers to raise prices further.
Following the report on consumer sentiment, the yield on the 10-year Treasury briefly jumped to 5.22 per cent, up from 5.18 per cent late Thursday, and was near its highest level since 2007.
High yields slow the economy by making it more expensive for everyone to borrow money, while undercutting prices for stocks and other investments. The 10-year yield has been jumping since the start of the war with Iran, when it was at 3.97 per cent.
Higher yields worldwide are rattling all kinds of financial markets. They’re on the rise because of worries about inflation, expensive oil, big government debt loads, signs of continued economic strength and other factors.
But yields eased later in trading on Friday as the price of oil pulled lower, and the 10-year yield fell back to 5.15 per cent. That helped stocks on Wall Street regain strength.
Helping to drive the market higher was Akamai Technologies. The cloud company’s stock rose 3.2 per cent after it announced an $US11.6 billion, multiyear agreement with Anthropic, the company behind the Claude AI chatbot.
Costco Wholesale climbed 2.9 per cent after the retailer reported a stronger profit for the latest quarter than analysts expected. Such strong profit reports from US companies have helped the stock market remain resilient despite all the worries about high inflation and oil prices.
In other international markets, indexes were mixed in Europe following bigger moves in Asia. Japan’s Nikkei 225 climbed 1.3 per cent, while Hong Kong’s Hang Seng dropped 1 per cent.
with AP, Bloomberg
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