Australian stocks are expected to open lower on Tuesday after their US counterparts slipped overnight following Treasury yields hitting their highest levels since the summer.
After rising 0.7 per cent on Monday following a lift from Rio Tinto’s bid for lithium miner Arcadium, S&P/ASX 200 futures are pointing to a slight fall of 0.22 per cent Tuesday.
US stocks have largely been rallying to records on relief that interest rates are finally heading back down.Credit: Bloomberg
In the US, the S&P 500 was down 0.4 per cent in afternoon trading, though it’s still close to its all-time high set a week ago. The Dow Jones Industrial Average was down 225 points, or 0.5 per cent, coming off its own record. The Nasdaq composite was also lower.
US stocks have largely been rallying to records on relief that interest rates are finally heading back down, now that the Federal Reserve has widened its focus to include keeping the economy humming instead of just fighting high inflation. Friday’s blowout report on US jobs growth raised optimism about the economy and hopes that the Fed can pull off a perfect landing for it.
The stronger-than-expected hiring pushed Goldman Sachs economist David Mericle to say he now sees just a 15 per cent chance of a recession, down from 20 per cent.
But Friday’s jobs report was so strong that it also forced traders to ratchet back forecasts for how much the Fed will ultimately cut interest rates by. That in turn has sent Treasury yields higher, and the 10-year yield is back above 4 per cent for the first time since August.
The two-year Treasury yield also briefly climbed back above 4 per cent Monday, up from just 3.50 per cent a couple of weeks ago. That’s a sizeable move for the bond market, and it can drag on prices for stocks and kinds of other investments.
When Treasury bonds, which are seen as the safest possible investments, are paying more in interest, investors become less inclined to pay very high prices for stocks and other things that carry bigger risk of losing money.
If that’s the case, companies will need to deliver bigger profits to drive their stock prices much higher, and this week marks the start of the latest corporate earnings reporting season.
