United States
Wall Street extended its run of records overnight, with the S&P 500 nudging higher on the back of big tech gains, even as most sectors struggled to keep pace. The index’s climb to fresh highs underscored the market’s conviction that the US Federal Reserve is on the cusp of easing policy to counter a weakening labour market. Futures suggested the momentum could carry into today, with contracts pointing slightly higher.
Investors, however, remain cautious. A wave of inflation data due this week looms as the critical test for whether expectations of three rate cuts this year will hold. Money markets have already priced in that scenario almost fully, placing heavy emphasis on the upcoming consumer and producer price indexes. A softer-than-expected read would support the Fed’s easing path, but a surprise uptick could complicate matters.
BMO Capital Markets analysts Ian Lyngen and Vail Hartman noted that while a quarter-point cut is near certain at next week’s Fed meeting, the August inflation report will matter more for determining the end point of the Fed’s cutting cycle. Their view was echoed by JPMorgan’s Jamie Dimon, who warned that the sharp downward revision of US payrolls — showing 911,000 fewer jobs than previously reported — confirms a slowing economy.
The data saw the two-year Treasury yield rebound from its lowest levels since 2022, finishing at 4.09 per cent on the 10-year note. Despite that rise, equities held firm. The Dow Jones added 196 points, or 0.4 per cent, the S&P 500 rose 0.3 per cent and the Nasdaq gained 81 points, also 0.4 per cent. Apple shares dipped 1.5 per cent after unveiling its latest suite of products, while Oracle surged more than 25 per cent in after-hours trade on news of a blockbuster deal with OpenAI.
Strategists caution that the rally, while impressive, rests on fragile foundations. As Bloomberg’s Tatiana Darie observed, “this time, rate cuts have the whiff of unease rather than relief.” Investors will be parsing tonight’s US consumer price figures for confirmation.
Europe
European shares delivered a muted performance as politics overshadowed corporate news. The Stoxx Europe 600 Index closed little changed, despite an early rise of 0.4 per cent, while the CAC 40 managed a modest 0.2 per cent gain. Anglo American provided a bright spot, leaping 9.1 per cent after agreeing to merge with Canada’s Teck Resources.
The broader mood was subdued, however, after French Prime Minister Francois Bayrou lost a confidence vote and tendered his resignation. President Emmanuel Macron now faces the task of appointing a new leader — the third government reshuffle since last year’s snap election. Investors are bracing for credit rating reviews, with Fitch due to deliver its verdict on Friday.
The fallout has already weighed on French assets. Domestic-focused stocks such as Vinci and Eiffage have underperformed, while banks BNP Paribas and Societe Generale have dropped more than 7 per cent since Bayrou’s announcement. Bond markets have reacted too, with the spread between French and German 10-year yields widening significantly.
Still, market participants stressed that contagion risks remain contained. ING’s Vincent Juvyns noted that the worst-case scenario of snap elections is not in play. Yet, the risk of future policy shifts, such as reversing pension reforms, could unsettle ratings agencies.
Beyond France, investors kept an eye on geopolitical headlines after Israel launched an unprecedented strike against Hamas leaders in Doha, heightening tensions in the Middle East. Meanwhile, all eyes turn to the European Central Bank’s meeting on Thursday, with no further rate cuts expected this year. ECB President Christine Lagarde will need to strike a careful balance, avoiding any hint of direct support for France while maintaining credibility.
Australia
The local sharemarket diverged from Wall Street’s optimism, closing lower on Tuesday as weakness in the banks and energy weighed heavily. The S&P/ASX 200 Index fell 46.1 points, or 0.5 per cent, to 8803.5, with eight of 11 sectors in the red.
Commonwealth Bank led the losses, sliding 1.3 per cent to $166.08, while Macquarie dropped 1.1 per cent to $218.83. Westpac declined 0.8 per cent after Morgan Stanley slashed its price target, and ANZ slipped 0.2 per cent despite confirming plans to cut 3500 jobs. Analysts at Schroders flagged stretched valuations across the sector, with CBA trading at multiples nearly double historical norms.
Energy shares extended their decline after OPEC+’s decision to boost output from October. Woodside shed 1.2 per cent to $24.68, Santos dipped 0.9 per cent and Beach Energy fell 1.3 per cent.
In contrast, gold miners continued to shine as bullion prices surged to a record above $US3647 an ounce. Evolution climbed 2.1 per cent, Ramelius gained 1.8 per cent, Catalyst rallied 5.1 per cent and Vault rose 4.2 per cent. Investors are betting heavily that Fed rate cuts will bolster the appeal of the non-yielding metal.
On the corporate front, Telix Pharmaceuticals rose 1.6 per cent after securing an agreement with US regulators, while BHP slipped 1 per cent after settling a $110 million class action. CSL dropped 1.6 per cent amid its buyback announcement, with concerns lingering after weak earnings. Life360 continued its stellar run, advancing another 2.8 per cent and extending its year-to-date rally beyond 170 per cent.
Looking ahead, ASX futures were pointing to a flat start this morning, with little immediate impetus from offshore markets despite record closes on Wall Street. Traders will focus on China’s CPI figures today, expected to show a return to deflation, alongside tonight’s crucial US inflation release.
Commodities and currencies
Commodity markets were shaped by both geopolitics and central bank expectations. West Texas Intermediate crude edged 0.3 per cent higher to $62.79 a barrel, while Brent crude climbed 0.8 per cent to $66.53. Oil traders remain on edge following Israel’s strike in Qatar, which revived concerns about supply disruptions across the region.
Gold steadied after its record run, holding at $US3626.63 an ounce, with momentum firmly in favour of bullion amid growing bets on global rate cuts. Iron ore jumped 2 per cent to $US107.50 a tonne, providing some support to Australian miners despite broader equity weakness.
On currency markets, the US dollar extended gains, with the Bloomberg Dollar Spot Index up 0.2 per cent. The Australian dollar slipped 0.1 per cent to US65.85¢. Bitcoin eased 0.2 per cent to $US111,720, while Ether rose 0.2 per cent to $US4311.40.
Bond markets reflected the shifting policy outlook, with US 10-year yields climbing five basis points to 4.09 per cent, while Australian 10-years traded at 4.26 per cent.
Economic Calendar
US:
- MBA Mortgage Applications Aug 21:00
- PPI Final Demand (MoM and YoY) 22:30
- PPI Ex Food and Energy(MoM and YoY) 22:30
This article was written by James Woods, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
