Market Overview
Investors are focused on the impending US Federal Reserve interest rate decision, with markets largely expected to see a rate hike. This widely expected move, combined with persistent elevated oil prices, has driven a recent global bond sell-off. While crude oil prices have shown some moderation, US Treasury yields saw an increase on the day, and their current elevated levels remain a key consideration for global markets. In Asia, equity markets closed with mixed to positive performance, led by strong energy and materials sectors in Australia. European equity futures are pointing to a higher open, suggesting some relief from recent commodity and bond market pressures.
Markets
Asian equity benchmarks mostly advanced through the session. Australia’s S&P/ASX 200 (^AXJO) closed up 0.28% at 8,696.50, buoyed by energy and materials. Japan’s Nikkei 225 (^N225) ended the day 0.69% higher at 63,923.00, and South Korea’s KOSPI (^KS11) climbed 1.37% to 6,717.97. In Hong Kong, the Hang Seng (^HSI) gained 0.21% to 24,719.69 at the time of writing, while Mainland China’s Shanghai Composite (000001.SS) finished up 0.71% at 3,891.60.
In the commodity space, crude oil prices eased from recent highs. Brent Crude (BZ=F) was tracking at $107.48, down 1.17%, and WTI Crude (CL=F) traded at $103.98, a 1.75% decline. Gold prices, however, saw gains, with Gold (GC=F) trading at $4,372.40, up 0.91%.
Global bond markets continued to react to central bank expectations. The US 10-Year Treasury (^TNX) yield stood at 4.996%, having risen 3.50 bp. Similarly, the US 30-Year Treasury (^TYX) yield was at 5.364%, also up 3.50 bp.
In currency markets, the Australian Dollar (AUDUSD=X) traded at 0.7135, down 0.04%, while the US Dollar Index (DX-Y.NYB) traded at 99.57, down 0.08%.
European equity futures indicated a positive start for the region, with Euro Stoxx 50 futures gaining 0.4% and Stoxx 600 futures up 0.3% in pre-market trading. US equity futures also showed gains, with S&P 500 futures up 0.22%, Nasdaq-100 futures up 0.3%, and Dow Jones Industrial Average futures up 0.2%.
What Drove Markets
The dominant theme for global markets remains the widely expected US Federal Reserve interest rate decision later today (Wednesday AEST). Markets are positioning for a 25-basis-point rate hike, with a 92.4% probability priced in, which would mark the first such increase since 2023. Council of Economic Advisers chairman Christopher Phelan told CNBC on Tuesday that it would be a “mistake” for the Fed to raise rates. He added that “inflation data has been in the right direction.” This comes as the US consumer price index (CPI) was 3.4% over 12 months in August, cooling from 4.2% in May, though month-over-month CPI rose 0.4%, and core inflation (excluding food and energy) increased 0.3%, more than expected. Further contributing to global monetary policy discussions, UK consumer inflation accelerated to 3.1% in August, reaching its highest level in five months.
Anticipation of higher Fed rates, coupled with ongoing concerns about global supply and the US fiscal outlook, has recently fueled a global bond sell-off. The 10-year US Treasury yield briefly touched 5.04% on Tuesday, marking its highest level in almost two decades, before easing slightly.
Commodity markets saw oil prices retreat following reports of an unexpected rise in US crude inventories. However, underlying supply risks persist due to outages at a Saudi pipeline and Libyan oil fields, alongside concerns surrounding the US-Iran conflict. Brent crude edged about 0.5 per cent lower despite these supply risks. Separately, plunging gasoline and diesel stockpiles in China raise the possibility of future fuel export curbs, potentially impacting global crude markets. Chinese gasoline stockpiles dropped 2.9% last week to the lowest since 2022, and diesel holdings declined 2.4% to a 15-month low. Jianan Sun, an analyst at Energy Aspects, noted that there is “an increasing risk that Beijing could restrict monthly clean product exports to around 1.2 million tonnes in the fourth quarter.” Gold prices gained, providing support for gold miners in the Australian session.
The Australian market edged higher, propelled by strong performance in energy stocks, benefiting from elevated oil prices, and materials stocks, supported by a higher copper price. Rate-sensitive technology stocks, however, weighed on the ASX. The Australian dollar, for instance, climbed to a 13-year high of $NZ1.2410 against the New Zealand dollar, reflecting a 7 per cent gain for the year, primarily driven by expectations of faster Reserve Bank of Australia rate hikes compared to its New Zealand counterpart and strong commodity prices. Broader Asian markets were mixed, with notable gains in Japan and South Korea. Separately, Japan’s August exports rose 19.3%, while imports jumped 28%, resulting in a ¥1.106 trillion trade deficit. In the critical chip sector, SK Hynix (000660.KS) and Samsung Electronics (005930.KS) climbed, while Taiwan Semiconductor Manufacturing (TSMC) (2330.TW) slipped, reflecting varied performance as the AI debate shifts towards economic considerations. European equity markets are set for a higher open, with this positive sentiment attributed to the moderation in recent surges in both oil prices and global bond yields.
Stocks to Watch
In Australia, energy stocks performed strongly, with Woodside (WDS.AX) rising 2.84% to 33.27. Materials giants also saw gains, including BHP (BHP.AX) up 1.60% to 60.20, Fortescue (FMG.AX) increasing 1.97% to 16.54, and Rio Tinto (RIO.AX) advancing 1.06% to 166.25. Other notable Australian corporate movements included Reliance Worldwide, which gained 3.5% to $4.48 after Brookfield agreed to acquire it for $US3.38 ($4.75) cash per share. James Hardie tumbled 5.2% to $37.30 after its investor day presentation held earnings guidance steady despite predicting strong future cash flows. Codan surged 7.5% to $48.94 amid news of its chief executive’s pay upgrade. Pengana International Equities surged 7.3% to $1.10 following the settlement of a feud over the future of the listed investment vehicle.
In New Zealand, Infratil jumped 3.6% to $11.32 after lifting its full-year earnings guidance, driven by high demand for computing capacity from its part-owned CDC Data Centres.
In the chip sector, South Korea’s SK Hynix (000660.KS) climbed 4.08% to 1,759,000.00 after resolving a labor dispute by agreeing to pay 50% of profit-sharing bonuses in cash and half in company shares. Samsung Electronics (005930.KS) also gained 2.01% to 253,500.00. Conversely, Taiwan Semiconductor Manufacturing (TSMC) (2330.TW) slipped 0.21% to 2,380.00. In Hong Kong, Alibaba shares fell 0.5% as part of a mixed performance among technology shares. In broader regional corporate news, Indonesia saw President Prabowo Subianto appoint Suahasil Nazara as finance minister.