Market Overview
The APAC session presented a mixed picture on 01-OCT-26, primarily influenced by elevated global bond yields and evolving US inflation dynamics. While Australia’s equity market closed sharply lower, attributed to rising global bond yields and disappointing domestic trade figures, other major Asian markets, notably Japan and South Korea, rallied strongly on the back of robust chipmaker performance. US Treasury yields remained near multi-decade highs, though earlier reports noted a slight intraday easing. Softer-than-expected US inflation data reduced immediate pressure for an October Federal Reserve rate hike, yet maintained high probabilities for a December increase. In commodities, gold gained on the inflation news, while oil prices eased.
Markets
The S&P/ASX 200 Index fell 175 points, or 2 per cent, to 8614.40, reaching its lowest level since mid-June. In North Asia, Japan’s Nikkei 225 jumped 3.32% to 68,966.75, while South Korea’s KOSPI rose 1.69% to 6,953.82, with both markets largely driven by strong performance in semiconductor stocks. Mainland Chinese markets were closed for a holiday, while Hong Kong markets were closed for a holiday.
US 10-Year Treasury yields stood at 5.293%, up 3.80 bp, while the 30-Year Treasury yield was 5.638%, climbing 4.40 bp. Both yields remained elevated near multi-decade highs, having breached 5.3% and 5.65% respectively at one point on Wednesday. Gold climbed 0.75% to $4,218.10, recovering losses from the previous session. Brent crude eased 5.89% to $97.43, although it remained near $100 a barrel amidst concerns over prolonged Middle East supply disruptions. The Australian dollar traded lower against the USD at 0.6956, down 0.47%, following weaker domestic trade data.
What Drove Markets
Elevated global bond yields continued to act as a primary catalyst for market declines, particularly impacting the Australian equity market. The US 10-year yield and the 30-year yield had breached 5.3% and 5.65% respectively on Wednesday, reaching their highest levels in more than 20 years.
Softer-than-anticipated US Personal Consumption Expenditures (PCE) price index data for August eased expectations for an immediate Federal Reserve rate hike. The PCE price index rose 0.3% month-over-month, below the 0.4% forecast. Core inflation also rose by a lower-than-expected 0.2% from the previous month. Markets now price approximately a 38% chance of an October Fed rate hike, down from 51% before the PCE release. However, traders continue to price in around a 97% probability of a Fed rate increase in December.
A rally in chip-related stocks fueled significant gains in Japan, South Korea, and Taiwan. This was driven by positive forecasts from US chipmaker Micron Technology and strong South Korean semiconductor exports, which jumped 83.5% from a year earlier to a record high, boosted by AI investment.
Australia faced specific domestic headwinds. The country’s goods trade surplus narrowed sharply in August to A$495 million from a revised A$1.351 billion in July, undershooting economists’ expectations of about A$2 billion. Exports rose 3.7% while imports increased 5.8%. Additionally, Australia’s monthly inflation indicator accelerated to 4.0% in August from 3.5% in July, although trimmed-mean inflation held at 3.6%. These figures have kept attention on the Reserve Bank of Australia’s policy outlook, following its latest rate hike this week.
Stocks to Watch
Shares in Australian consumer staple giant Woolworths (WOW.AX) dropped 2.91% to $38.06, contributing to a broader 2.6% fall in the Australian consumer staples sector.
In Japan, Tokyo Electron (8035.T), a chip-related stock, jumped 6.47% to 12,580.00, leading gains in the Nikkei 225. South Korean chipmaker SK Hynix (000660.KS) climbed 3.04% to 1,830,000.00, while Samsung Electronics (005930.KS) shares rose 2.61% to 275,500.00. Taiwan Semiconductor Manufacturing Co. (TSMC) (2330.TW) shares edged up 1.21% to 2,510.00.