Key themes: Markets were in a holding pattern overnight as investors await key US inflation data later this week. US Fed Chair Powell is also due to speak, possibly providing further insights on future rate moves.
US equities were mixed and lack direction for most of the session. US bond yields were broadly unchanged, with stronger than expected consumer inflation expectations data driving yields higher late in the session. The US dollar was softer.
The local share market finished flat ahead of today’s 2024-25 federal budget. The government revealed overnight that it expects a $A9.3bn surplus this financial year. The key question for markets is whether the government can strike the right balance between providing cost-of-living support and continuing to take pressure off inflation.
Share markets: US equities drifted to a mixed finish. Investors are in a holding pattern ahead of key inflation data which includes the release of US producer price data on Tuesday, and the consumer price index on Wednesday.
The S&P 500 was broadly unchanged closing at 5,221.42 after flipping between small gains and losses through the session. The Dow Jones fell 0.2% to 39,431.51. The Nasdaq rose 0.3% to 16,338.24.
The ASX 200 was flat, closing at 7,750.0 ahead of the 2024-25 federal budget. Health and consumer equities advanced, while energy stocks declined in line with the fall in oil prices. Futures are pointing to a soft open today.
Interest rates: US bond yields were broadly unchanged. After falling in early trade, yields recovered on the back of stronger than expected consumer inflation expectations data released by the New York Fed.
The 2-year bond yield was unchanged at 4.86%, after reaching a low of 4.82%. The 10-year treasury yield declined by 1 basis point to 4.49%, after reaching a low of 4.46%.
Interest-rate markets continue to price a full rate cut by November. For 2024, the market is pricing in around 40 basis points of cuts – slightly less than two 25-basis-point moves.
Australian yields were also flat. The 3-year government bond yield (futures) was down by 1 basis point, at 3.95%. The 10-year government bond yield (futures) was up by 1 basis point, at 4.35%.
Foreign exchange: The US dollar was softer. The DXY index fell to a low of 105.06, before receiving yield support and staging a recovery late in the day to reach a high of 105.37. The DXY Index is trading at around 105.23.
The Aussie flipped between minor gains and losses, remaining around the 0.6600 level. Through the session, the AUD/USD moved from a low of 0.6586 to a high of 0.6629. The pair is currently trading at around 0.6606.
Commodities: Commodities were mixed. Oil and copper were higher. Gold and coal were lower. Iron ore was unchanged.
The West Texas Intermediate (WTI) futures is currently sitting at around US$79.12 per barrel.
Iron ore reached a high of almost US$118.0 per tonne following speculation the Chinese government will use capital, raised through the sovereign bond issuance program announced yesterday, to support the economy and property sector.
Australia: Business confidence and conditions were little changed in April. Conditions slipped 2 points to +7 index points. This is below the 10-year average but around the long-term average of the monthly series. Confidence was unchanged in the month, remaining just in positive territory, at +1 index points. Confidence among businesses has fluctuated around neutral levels for a little over 18 months, with occasional bumps higher or lower in certain months.
Quarterly measures of labour and purchase cost growth – key inputs for businesses – were both softer in the month, at 1.5% and 1.2%, respectively. Retail price growth slowed to the second slowest pace since January 2021, at 0.9% on a quarterly equivalent basis.
From a big picture perspective, little has changed in April. Conditions continue to gradually trend lower but remain around long-run average levels, while businesses are still cautious about the future. 2024 is expected to be a year of two halves. While conditions remain challenging in the first half of the year, a gradual recovery is expected to take place from the second half of 2024, before picking up more pace into 2025.
United States: The New York Fed consumer inflation expectations survey for April showed a sharp increase in expectations for the year ahead – 3.3% from 3.0% in March. Inflation expectations for five years ahead also increased, from 2.6% in March to 2.8% in April.
