(US) – The global financial markets experienced a further sell-off in both bonds and equities on Friday, following a week marked by warnings from central banks.
Both the US Federal Reserve and the Bank of England cautioned that interest rates could rise again this year due to escalating wage and energy prices.
Key developments in the financial markets included:
- US 10-year Treasury yields reached a level of 4.51%, coming within 2 basis points of their highest point since 2007. Bond investors sought higher compensation for the present value of money.
- The US S&P 500 suffered a 1.6% drop on Thursday, marking its worst performance since March, with the Nasdaq, sensitive to interest rates, losing 1.8%. Concerns also arose about a potential US government shutdown in October if spending limits aren’t agreed upon.
- In Australia, the S&P/ASX 200 Index initially opened more than 1.5% lower but later trimmed its losses.
- Interest rate futures traders in Australia priced in 23 basis points of rate increases by March, anticipating the Reserve Bank of Australia would take the cash rate to 4.35% from its current 4.1%. Expectations of a rate cut in 2024 were abandoned.
- In the US, interest rate traders put the likelihood of another cash rate increase by the Federal Reserve this year at 52%. US 1-year Treasury yields matched the current cash rate range of 5.25% to 5.5%, standing at 5.46% on Friday.
The sell-off in risk assets followed the Fed’s latest economic projections, which indicated that 12 out of 19 Fed officials expect one more rate hike this year.
Concerns over a strong job market and services inflation led to a reduced likelihood of rate cuts in 2024.
The Bank of England’s decision to maintain rates at 5.25% but signal potential future increases added to market uncertainty. Gold prices retreated to $1,940 an ounce, while copper experienced its largest drop in four months.
Oil prices, on the other hand, rebounded, with West Texas Intermediate surpassing $90 a barrel.
Despite this, petrol prices in Australia were expected to rise further, driven by international oil price trends.
In the upcoming week, Australia anticipates the release of the August consumer price index report, expected to show a year-on-year increase of 5.2%, primarily due to rising petrol prices and cost-of-living pressures.
