This is our weekly market update, where we start in the US, cross to Europe and Asia, and end in Australia, covering commodities and crypto along the way.
And this past week saw markets lower, with the MSCI global index down another 1.58% and down nearly 4% for the past month. Wall Street’s main indexes closed their second consecutive week in the red even as the US Dollar was stronger with the US Dollar Index Futures up 0.44% at 109.67, which will put further pressure on other economies around the world in including Australia.
Unexpected strong December payrolls data, with the US economy adding far more than expected jobs last month, hammered hopes for lower interest rates though US stocks closed off their session. Bond yields continued to climb, with the haunting risk of higher rates for longer putting more pressure of some stocks, ahead of the Trump 2.0 agenda turning from speculation to reality in the next couple of weeks. Longer-dated U.S. Treasury yields, which move inversely to prices, jumped to their highest levels since November 2023, with the 10-year hitting a high of 4.79%.
Yields have gained 20 basis points since the beginning of the year amid a global government bonds selloff that has hit UK government bonds particularly hard, pushing 30-year gilt yields to their highest since 1998.
Outside of bonds, rising U.S. Treasury yields could dampen investor interest in stocks and other high-risk assets by tightening financial conditions and increasing borrowing costs for businesses and individuals.
Traders now see the FED lowering borrowing costs for the first time in June and then staying steady for the rest of the year although BofA Global Research is forecasting a potential rate hike saying the Federal Reserve’s rate-cutting cycle “is over”.
Traders’ confidence in the pound has taken its biggest dive this week for a third straight session of declines since the 2022 UK budget crisis ending at 1.2208 against the USD as a global bond selloff added to growing unease over Britain’s finances with Britain’s government bond market in the crosshairs as 30-year gilt yields there hit 27-year highs and 10-year benchmarks reaching levels not seen since 2008. This puts Britain’s finance minister under pressure as concerns over Trump’s policies have pushed the British government’s borrowing costs higher. Even though those gilt yield rises are largely just in line with what’s happened in U.S. Treasuries a worrying development in the UK is that sterling has turned tail too and stopped following domestic yields higher.
The ASX fell on the final trading day of the week, as a gloomy outlook for Wall Street trading ahead of a key jobs report pushed the bourse lower. The S&P/ASX 200 Index reversed modest gains earlier in the session to close at 8294.1 points, down 0.4 per cent.
The Australian dollar’s slump against the US greenback to around levels last recorded in the 2020 pandemic and 2008 global financial crisis has a lot of people talking. The Australian dollar ended the week 0.4 per cent lower against the greenback, touching a new two-year low of US61.47. There are consequences. A weaker currency is stimulatory for the economy and inflation, while a stronger exchange rate slows the economy and helps cool inflation.
So, standing back, we are right in the zone of uncertainty, with expectations of higher for longer rates back on the table with a strong US dollar likely to break things elsewhere. All up, we continue to expect periods of severe volatility, and lower growth trajectory, so no surprise to see more holding cash and waiting to see what plays out.
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