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As feared, it was a return to more hawkish commentary from US Fed chair Powell that was the main event – in particular, he indicated he was “not confident” the Fed had yet done enough to ensure inflation will fall back to its 2% target level.
US 10-year yields dropped a lazy 0.26% to 4.57%, while the S&P 500 rebounded by an equally lazy 5.9%. Helping the positive market vibe, oil prices dropped 5.9% as fear of a Middle East war escalation eased.
The local sharemarket fell in sympathy with global markets last week, and was not helped by a higher than expected CPI inflation result which has increased expectations of an RBA rate hike next week.
Even if this week’s inflation result is no worse than the market currently forecasts, the RBA may still feel under pressure to raise rates given that higher oil prices may be leading to a higher for longer inflation outlook, with risk to containment of inflation expectations.
The local highlight this week will be Thursday’s September employment report, with a further solid 20k gain in employment expected, which should keep the unemployment rate steady at 3.7%.
US equities managed to squeeze out small gains last week despite a further rise in bond yields, likely helped by a slump in oil prices and easing US wage inflation.
Despite benign US inflation data, the ‘no landing’ correction in global equities continued last week, with the S&P 500 down a further 0.7% and US 10-year bond yields rising 0.13% to 4.57%.
The key catalyst, of course, was the Fed meeting. While the Fed kept rates on hold as widely expected, the ‘dot plot’ of Fed policy expectations retained a further rate hike this year – and one less rate cut in 2024.
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