Equities halt rally; Aussie falls on RBA’s pause: Markets wrap

July 04, 2023

The rally in global shares paused Tuesday amid lackluster trading as US futures fluctuated and Japanese equities weighed down a gauge of Asia stocks.

The Australian dollar declined after the central bank kept interest rates unchanged while the yield on the nation’s policy-sensitive three-year bond reversed an earlier gain. Australian equities rose.

Both economists and traders had been divided on the likelihood of a hike or pause by the Reserve Bank of Australia, and the course ahead remains uncertain, with a bumpy ride likely for markets.

“The market is probably still underestimating how far RBA will have to go,” said Philip McNicholas, Asia sovereign strategist at Robeco in Singapore. “Market is priced for RBA to basically ignore its inflation target for the next five years. I can’t really see that happening.”

Elsewhere, Japan’s Topix fell about 0.6%, while Hong Kong’s Hang Seng Index rose by around the same amount and shares in Shanghai fluctuated.

This follows an advance of just 0.1% for the S&P 500 in a shortened session Monday that ended at lunchtime. The Nasdaq 100 added 0.2% on a day that brought data showing a slowdown in manufacturing.

Major currencies were mostly steady. Treasuries weren’t trading Tuesday due to the Independence Day holiday in the US.

The offshore yuan strengthened after the People’s Bank of China extended again its efforts to prop up the currency through its daily reference rate.

exports of gallium and germanium, which are crucial for the semiconductor, telecommunications and electric-vehicles sectors. The ban is seen China’s escalation of the tit-for-tat technology trade conflict with the US and its allies.

The new restrictions are a second, and much bigger, countermeasure in the tech war after China’s similar move on Micron Technology Inc., according to Jefferies analysts, including Edison Lee. “If this doesn’t change the US-China dynamics, more rare earth export controls should be expected,” they wrote in a note.

Meanwhile, a key part of the US Treasury yield curve approached its most inverted level in decades on Monday as traders priced in further hikes from the Federal Reserve. Two-year yields exceeded the 10-year by around 111 basis points.

Cooling signals in the world’s biggest economy — which are set to influence the trajectory of the Fed’s monetary-tightening cycle — mean investors are tempering expectations for stocks for the remainder of the year, especially as central banks worldwide have maintained their hawkish rhetoric.

The manufacturing sector painted a grim picture as US factory activity fell to its weakest level in more than three years. Production and new orders data also suggested a pullback.

Elsewhere, oil rose as traders assessed the latest salvo from OPEC+ kingpins Saudi Arabia and Russia to prop up prices by curbing supply. Gold ticked higher.

Key events this week:

  • US Independence Day national holiday. Financial markets closed, Tuesday

  • China Caixin services and composite PMI, Wednesday

  • Eurozone S&P Global Eurozone services PMI, PPI, Wednesday

  • OPEC International Seminar, speakers including OPEC+ oil ministers, kicks off in Vienna, Wednesday

  • FOMC issues minutes on June policy meeting, Wednesday

  • New York Fed President John Williams in “fireside chat” at meeting of the Central Bank Research Association at the New York Fed, Wednesday

  • US initial jobless claims, trade, ISM services, job openings, Thursday

  • Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday

  • US unemployment rate, nonfarm payrolls, Friday

  • ECB’s Christine Lagarde addresses an event in France, Friday

Some of the main moves in markets today:

Stocks

  • S&P 500 futures were little changed as of 2:12 p.m. Tokyo time. The S&P 500 rose 0.1%

  • Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 0.2%

  • Japan’s Topix fell 0.6%

  • Australia’s S&P/ASX 200 rose 0.5%

  • Hong Kong’s Hang Seng rose 0.5%

  • The Shanghai Composite was little changed

  • Euro Stoxx 50 futures rose 0.1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.1% to $1.0899

  • The Japanese yen was little changed at 144.66 per dollar

  • The offshore yuan rose 0.1% to 7.2441 per dollar

  • The Australian dollar fell 0.4% to $0.6648

Cryptocurrencies

  • Bitcoin fell 0.2% to $31 070.68

  • Ether fell 0.2% to $1,954.27

Bonds

  • Japan’s 10-year yield declined two basis points to 0.380%

  • Australia’s 10-year yield advanced two basis points to 3.99%

Commodities

  • West Texas Intermediate crude rose 0.5% to $70.16 a barrel

  • Spot gold rose 0.1% to $1,923.63 an ounce

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