The Australian sharemarket is set to rise this morning with the SPI futures pointing to a 0.2 per cent gain or a 11-point rise.
Treasury yields tumble, S&P 500 posts new highWall St went on the move as the three main indexes advanced with the S&P 500 posting a new high after investors pondered on the minutes from the last Federal Reserve meeting. The 10-year treasury bond yields fell to its lowest level since February despite strong economic data, powering technology stocks which saw Banks rise despite the drop. Oil prices took a further tumble after OPEC+ failed to reconvene earlier this week.
Taper off or not, debate ensuesPolicymakers began debating in their June meeting on the timing and approach on how they would reduce their monthly bond purchases, which has been in-force to keep longer-term interest rates in check.
The debate, revealed in the minutes showed the Fed is likely to act sooner to taper bond purchases which has helped with the economic rebound from the Covid-19 pandemic that has coincided with a rise in inflation.
The Fed’s policymakers forecast that they would raise their benchmark short-term rate which would affect consumer and business loans including mortgages and credit cards twice by late 2023. Before that, they estimated that no rate hike would occur before 2024.
What does this mean?An earlier rate hike suggests that the Fed could bring forward its timing for reducing its bond purchases. The Fed is buying $120 billion a month in Treasury securities and mortgage-backed bonds to keep longer-term interest rates low which helps with consumers borrow and spend more. The minutes said that it will continue making purchases until the economy makes “substantial further progress” toward its goals of full employment and an inflation rate slightly above 2 per cent.
Wall St gains, Healthcare growsThe S&P 500 rose 0.3 per cent to 4,358 to an all-time high after the blue-chip index ended a 7-day winning streak post-holiday celebrations. The Dow Jones also added 0.3 per cent to 34,682 while the Nasdaq eked up 0.01 per cent,at 14,665 after tipping an intra-day high.
Across the sectors, Technology, Materials and Industrial stocks accounted for the gains the S&P 500 though Healthcare and Real Estate added 1.4 per cent as the best performers of the session. Energy fell 1.7 per cent as oil prices fell. Apple added 1.8 per cent while Microsoft advanced 0.8 per cent.
Why has bond yields moved?Bond yields have been steady over the month with a fall in the past two days. Economic data has been positive which shows the economy recovering out of the pandemic with inflation tied to demand for raw materials and workers.
The benchmark 10-year treasury note was trading at 1.32 per cent, down from 1.37 per cent the day before. A month ago, the 10-year note was trading at around 1.62 per cent. The last time bond yields moved lower so quickly was in March 2020 when the pandemic effectively shut down the U.S. economy.
Lower bond yields can assist the economy in several ways however, mortgage rates are tied closely to bond yields, and government borrowing costs fall when the price of issuing bonds decreases.
Investors were concerned for much of the year about rising inflation and whether higher rates were going to be temporary or sustained. The Federal Reserve has said it expects any hikes to be short-term though investors’ nerves have eased about a post-pandemic economy with higher inflation.
European markets closes mixedAcross the Atlantic, UK house prices fell in June for the first time since January as the government prepares to scale back its tax break for home buyers. London’s FTSE added 0.7 per cent helped by heavyweight miners, Paris gained 0.3 per cent and Frankfurt closed 1.2 per cent higher.
Chinese markets moves, Tokyo dipsIn China, Beijing is set to step up their supervision of Chinese firms listed overseas which saw Asian markets close mixed. The Shanghai Composite added 0.7 per cent while the Hong Kong Hang Seng lost 0.4 per cent. In Japan, Tokyo’s Nikkei dipped 1 per cent on reports the government is contemplating declaring another state of emergency to reduce the spready of Covid-19.
Iron ore and gold gains, oil dropsIn London trade, BHP jumped 3.2 per cent while Rio Tinto rose 2.6 per cent in London trade. The iron ore price is flat US$222.39. Iron Ore futures suggest a 0.1 per cent gain. Gold has gained $7.90 to US$1802 an ounce while Silver has fallen $0.04 to US$26.13 an ounce.
Oil has lost $1.17 to US$72.20 a barrel on tension within the OPEC cartel. The United Arab Emirates refused to sign up to a strategy to increase supply in the future as demand in the U.S. and other developed economies soars, prompting OPEC+ to cancel Monday’s planned meeting.
ASX 200 - Wed wrapYesterday, the Australian sharemarket closed 0.9 per cent higher at 7,327, clawing back gains after investors sold off shares on news the Reserve Bank started to taper its support. Technology and Consumer Staples were among the top gainers, up 2.8 per cent and 1.9 per cent. Energy was the worst performer, down 1.9 per cent after oil producers broke off talks about supply.
Tech star Afterpay
(ASX:APT) jumped 4.6 per cent while Woolworths
(ASX:WOW) added 1.9 per cent as they both helped drive their relevant sectors higher.Travel stocks failed to take-off following the extension of the lockdown in Greater Sydney by another week.Qantas
(ASX:QAN) fell 0.6 per cent at $4.87 while Flight Centre
(ASX:FLT) dropped 0.4 per cent at $15.79.
Making headlines, investment company Challenger
(ASX:CGF) climbed 8.8 per cent to $5.95 after US retirement services provider Athene bought a 15 per cent stake in the company.
Local economic newsToday RBA Governor Philip Lowe is slated to give an online speech at the Economic Society of Australia at 12.30pm (AEST).
Broker movesCredit Suisse upgrades Sydney Airport
(ASX:SYD) as a hold with a price target of $7.70. Sydney Airport received a non-binding indicative cash bid of $8.25 per share from a consortium of infrastructure investors, IFM Investors, Conyers, QSuper and Global Infrastructure Management.
The offer implies an equity value of $22.3 billion and an enterprise value of $30.6 billion. It is at a 42 per cent premium to Sydney Airport's closing price on Friday. Credit Suisse notes a 67 per cent probability of a successful deal at the current indicative offer.
Along with several conditions attached to the offer, the offer is conditional on UniSuper joining the consortium with its current 15 per cent stake. Credit Suisse also notes that given Australian airport cross holding limits, IFM Investors will not be able to hold more than 15 per cent of the equity. The rating is upgraded to hold, with an increased target price to $7.70 from $5.30.
Shares in Sydney Airport
(ASX:SYD) closed 1.3 per cent lower at $7.61 yesterday.
CurrenciesOne Australian Dollar at 7:45 AM was buying 74.85 US cents, 54.22 Pence Sterling, 82.82 Yen and 63.47 Euro cents.
