Yields fell further, particularly at the longer end of the curve. The US dollar index was softer while the Aussie finished slightly lower against the Greenback. Forex moves were fairly muted after the volatility we saw last session. Oil continued to fall on the back of OPEC+ weekend announcement.
Equities rebounded strongly as investors looked to ‘buy the dip’ following the big falls recorded last Friday. The tech megacaps, which were heavily sold off last session, led the market higher. Equities were also supported by lower yields, which continued to edge lower as the rally in treasuries was extended. The S&P 500 climbed 1.5%, the biggest daily gain since May, with ten of eleven sectors finishing in the green. The Nasdaq increased almost 2.0%, while the Dow Jones gained 1.3%.
European markets also rebounded strongly on the back of improved risk sentiment and as the EU Commission announced it will suspend tariffs on US imports for at least six months – in a sign trade tensions a de-escalating. The Euro Stoxx 50 finished 1.5% higher, Germany’s DAX increased 1.4%, the FTSE 100 gained 0.7% and France’s CAC was 1.1% higher. The ASX 200 finished slightly higher (+0.02%). Futures are pointing to a strong open this morning.
The rally we say in US treasuries was extended for another session, with the US yield curve moving lower. The 2-year US bond yield declined 1 basis point to 3.68%, while the 10-year US bond yield declined 2 basis points to 4.19%. Interest-rate futures now have an 97% chance of a September US Fed cut, with 63 basis points of cuts priced in over 2025. The rally in treasuries also continued outside of the US, with longer term yields falling in Europe and Asia. In Europe, 10-year bond yields dropped 6 and 2 basis points in Germany and the UK, respectively.
At home, treasuries were continued to be sold off with the 3-and-10-year futures down 3 and 5 basis points to 3.32% and 4.24%, respectively. Interest-rate futures now have a rate cut for August fully priced in, and there are around 66 basis points of cuts priced in over 2025 – up from around 60 basis point a week ago.
The US dollar continued to soften for the second consecutive session on the back of the lower yields. The US dollar index traded within a narrow range (98.592 to 98.980) and is currently at 98.753. The Aussie was slightly lower at 0.6467 and traded within a tight range (0.6447 to 0.6490). We see upside for the AUD/USD pair, as trade policy uncertainty diminishes, the US economy slows and possible future stimulus coming out of China supports activity.
Gold was 0.3% higher on lower yields as traders increased their bets of further US Fed rate cuts. Oil continued to fall on the back of the weekend’s announcement that OPEC+ will add 547k barrels to global supply in September. The WTI fell 1.5% to US$66.29/bbl. Copper stabilised and Iron Ore was 1.5% higher at US$102.4/t.
International Data:
President Trump announced that tariffs on Indian exports to the US will be raised ‘substantially’, citing purchases of Russian oil. Reports suggest India called the country’s targeting ‘unjustified and unreasonable’.
US Factory orders fell 4.8%mth in June, partly offsetting an 8.3%mth rise in May. The transportation category, primarily driven by aircraft parts, continued to drive sharp month-to- month changes. Excluding transportation, total orders were up 0.2%mth, consistent with the average pace so far this year. The durable orders component was largely unrevised from the preliminary estimate, showing a 9.4%mth decline. Capital goods orders excluding defence and aircraft declined 0.8%mth, leaving Q2 growth at -0.5%, down from 2.2% in Q1.
The Sentix confidence survey signalled that investors are sceptical about the EU-US trade agreement and its implications for the euro area economy. After rebounding from the initial tariff shock in early Q2, the headline euro area economic sentiment index declined sharply this month, by 8.2 points to -3.7. The current situation and expectations components were materially lower, by 5.8 and 11.0 points. While these indices remain above the average levels recorded in 2024, the survey underscored that optimism regarding the euro area’s economic prospects seen earlier this year can dissipate quickly.
Local Data:
The Melbourne Institute inflation gauge jumped 0.9%mth in July, the largest monthly increase since December 2023. This comes on the back of a soft 0.1%mth increase in June and a fall of 0.4%mth in May. The minimum and award wage increase which kicked in from 1 July would have contributed to this monthly increase.
