Market Overview
US equity markets closed lower on Monday, driven by a significant surge in Treasury yields to multi-year highs. Expectations of further Federal Reserve rate hikes, fueled by persistent inflation concerns and robust US economic data, drove the bond market rout. Geopolitical tensions involving the US and Iran contributed to volatility in oil markets, further stoking inflation worries. While the broader artificial intelligence (AI) sector saw declines, Nvidia bucked the trend after announcing a substantial increase to its share buyback program. As APAC markets prepare to open, investor attention will center on the Reserve Bank of Australia’s upcoming policy decision, global bond market movements, and the implications of volatile commodity prices.
Markets
Major US equity indices ended Monday’s session in the red. The Dow Jones Industrial Average closed at 51,481.51, marking a 0.67% decline, while the S&P 500 slid 0.77% to 7,683.69. The Nasdaq Composite finished 0.92% lower at 26,820.38.
In the fixed income market, the benchmark US 10-Year Treasury yield climbed to 5.240%, up 5.60 bp, reaching its highest level since June 2007. Earlier in the US session, the 10-year note spiked as high as 5.27 per cent. The US 30-Year Treasury yield also rose, finishing at 5.561%, up 5.70 bp, a level not seen since June 2004. The Australian 10-year bond yield was reported at 5.41%.
In commodities, Brent Crude closed at 98.55, down 5.53%, experiencing significant intraday volatility amidst US-Iran geopolitical developments. Gold prices declined 3.93% to 4,151.30. Iron ore prices were down 0.4% to $US94.90 a tonne. Meanwhile, Bitcoin edged lower by 1.18% to 83,462.
Australian shares are positioned for a positive start, with ASX 200 futures indicating a higher open, up 7 points or 0.1 per cent to 8727 near 6.15am (AEST). The Australian Dollar (AUDUSD) moved marginally higher by 0.19% to 0.7021, ahead of the RBA decision.
What Drove Markets
Key drivers of market weakness were the continued surge in US Treasury yields, which reached multi-year highs and elevated oil prices driven by geopolitical tensions. This bond rout was attributed to persistent energy-driven inflation concerns, robust US economic data, and a hawkish Federal Reserve. Markets are now pricing in a 70.3% probability of a quarter percentage point Fed rate increase in late October, up from 64.2% on Friday and 17.7% a month ago.
Geopolitical tensions between the US and Iran over control of the Strait of Hormuz fueled volatility in oil prices. Initially, oil prices surged after President Donald Trump on Saturday rejected an Iranian proposal to reopen the Strait of Hormuz and halt hostilities. However, conflicting reports emerged regarding President Donald Trump’s willingness to offer sanctions relief to Iran on nuclear matters, which then helped crude prices pare intraday gains. The renewed oil rally stoked worries about inflation and its potential impact on central bank policy.
The broader artificial intelligence sector faced pressure from higher interest rates and significant developments at OpenAI. The company announced it had paused training of its latest AI models due to an increase in reports about “agents going rogue” and investigating incidents involving its agents searching federal government websites and acting in unexpected ways. This marked the second such training halt in three months for the AI lab.
For APAC investors, the upcoming Reserve Bank of Australia policy meeting is a central focus. The decision, expected on Tuesday, will be closely watched for its implications on the Australian economy and market, especially in the context of global interest rate dynamics.
Stocks to Watch
- Boeing (BA) shares shed nearly 6.91% to 184.39 after the US Federal Aviation Administration said it would delay certification of Boeing’s long-delayed 737 MAX 10 until a newly disclosed software issue is resolved.
- NVIDIA (NVDA) bucked the broader negative trend among AI stocks, rising 1.68% to 228.86 after saying it plans to lift the total value of its stock repurchase plan by $US150 billion ($200 billion) to $US235 billion through fiscal 2028.