Market Overview
Asian markets largely advanced on Monday, driven by optimism surrounding an upcoming US-China summit, which particularly boosted technology shares. Concurrently, a significant decline in oil prices helped ease inflation concerns and contributed to a “risk-on” mood, setting European markets for a higher open. In contrast, Australian equities traded flat as increasing expectations for further Reserve Bank of Australia (RBA) rate hikes weighed on investor sentiment.
Markets
South Korea’s KOSPI led regional gains, closing up 1.42% at 6,992.30. Hong Kong’s Hang Seng Index rose 0.64% to 24,910.05 in afternoon trade, while China’s Shanghai Composite was up 0.72% at 3,940.14. The CSI 300 also gained 0.40%, with both Chinese indices buoyed by positive signals from US-China trade talks. Taiwan’s TAIEX closed higher by 1.1%.
Conversely, Australia’s S&P/ASX 200 Index finished largely flat, ticking up just 0.01% to 8,731.90, as investors adjusted to the increasing likelihood of RBA rate increases.
Brent crude futures extended their decline for a fourth straight session, trading -6.07% lower at $97.56 a barrel, reaching its lowest level in over 10 days. Gold prices also fell, down -0.87% to $4,386.30.
In the US, stock futures climbed early Monday, with S&P 500 futures up 0.42%, Nasdaq-100 futures gaining 0.58%, and Dow futures rising 0.36%. The 10-Year US Treasury yield stood at 4.998%, having moved 5.10 bp higher.
Looking to Europe, Euro Stoxx 50 futures gained 0.7% and Stoxx 600 futures were up 0.5%, indicating that equity markets are broadly set for a higher open.
What Drove Markets
Optimism surrounding preliminary US-China trade discussions ahead of a key summit between U.S. President Donald Trump and Chinese President Xi Jinping later this week fueled gains in Asian technology shares. Weekend talks in New York between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng were described as positive, covering trade and artificial intelligence, with an agreement to establish an AI dialogue. This sentiment bolstered markets like South Korea’s KOSPI and Taiwan’s TAIEX, with major chipmakers and tech companies seeing gains.
Meanwhile, Brent crude oil prices continued their decline, trading below $US102, attributed to resilient Saudi crude exports despite recent attacks and the ongoing US-Iran stalemate. The U.S. State Department has warned Americans to reconsider traveling to the Middle East as the U.S. and Iran traded threats to resume attacks. This fall in oil prices helped ease inflation concerns, supporting a “risk-on” mood in Asian equities and contributing to European stock markets heading for a higher open. Hopes for a diplomatic resolution in the Middle East also emerged, as U.S. President Donald Trump indicated he would “probably” be open to meeting Iranian President Masoud Pezeshkian on the sidelines of the United Nations General Assembly this week, potentially alongside other Persian Gulf leaders.
In Australia, the sharemarket traded flat as investors rotated into defensive sectors, driven by the increasing likelihood of multiple RBA interest rate hikes to combat persistent inflation. Financial markets are now fully priced for the RBA to raise the cash rate to 4.6% at next week’s policy meeting (September 28-29), up from an 86% probability early last week. Traders are also fully pricing in a follow-up rate rise to 4.85% by early next year and placing a solid chance on a further increase by mid-next year, which would take the cash rate above 5%, its highest level since 2008. This sentiment followed RBA governor Michele Bullock’s warning on Friday that upside risks to inflation were “materialising.” Economists at ANZ and Commonwealth Bank of Australia (CBA) changed their forecasts on Monday, with all “big four” banks now expecting an RBA rate hike next week. Global X analyst Joseph Marassa noted that the session reflected a defensive rotation driven by expectations of higher for longer rates and persistent inflation concerns, continuing a pattern seen through the month with the healthcare sector helping offset weakness in rate-sensitive areas. The RBA has already lifted the cash rate three times this year to 4.35%.
The Federal Reserve hiked interest rates last week for the first time in three years, as the U.S. continues to grapple with sticky inflation and elevated bond yields. The 10-year Treasury yield is hovering close to 5%, with investors continuing to monitor yields following expectations of further U.S. Federal Reserve rate increases. The PBoC also held the one-year loan prime rate at 3% for the 16th straight month.
Stocks to Watch
Australian technology stocks sensitive to interest rates saw declines, with Xero sinking 4.3%, NextDC down 3.4%, and WiseTech Global falling 0.9%. Gold miners also experienced sell-offs amid growing expectations for further global rate hikes, including Vault Minerals down 1.1%, Northern Star down 1.1%, and Newmont falling 2%.
Conversely, Australian banking shares ANZ and Commonwealth Bank of Australia (CBA) closed higher, up 0.93% and 0.37% respectively, after their economists changed forecasts to expect an RBA rate hike next week.
In Asia, leading tech companies gained on US-China optimism. South Korea’s Samsung Electronics jumped 4.79%, and SK Hynix rose 0.22%. In Taiwan, TSMC advanced 0.81%, and MediaTek surged 6.4%.