The Australian sharemarket is poised for a positive start to the week, drawing strength from expectations of a robust corporate earnings season on Wall Street. However, anxious investors remain vigilant for any signs that severe bond market turmoil could spill over into equities.
Global bond markets have seen significant upheaval, with US Treasury yields rising sharply since February. The benchmark 10-year yield now sits at 5.23 per cent, its highest in over two decades. Dan Ivascyn, chief investment officer at Pimco, a giant bond house providing investment management services primarily for fixed income, warned it could climb further to 6 per cent. Australian 10-year yields have also hit a 15-year peak of 5.43 per cent, now hovering around 5.35 per cent. Emanuel Datt, chief investment officer at Datt Capital, noted the biggest risk for shares lies in bond market performance, stating, “If yields keep moving higher, that’s obviously going to temper equity markets.” This sell-off is fuelled by higher energy costs, expectations of further central bank rate increases, and mounting government debt concerns, compounded by oil prices jumping 50 per cent since late February amid renewed geopolitical threats in the Gulf region.
While rising borrowing costs typically weigh on share values, Wall Street defied this last week by pushing to fresh highs. In contrast, Australia’s main index has erased its year-to-date gains, impacted by domestic headwinds like Reserve Bank of Australia interest rate increases and falling property prices. Locally, investors will scrutinise the RBA’s September policy meeting minutes on Tuesday for clues on future cash rate movements, with a 30 per cent chance of a hike next month. The September jobs report is due Thursday. Mining giant Glencore, a global producer and marketer of commodities, will also commence trading on the ASX Wednesday, offering exposure to the copper market.
Offshore, Wall Street’s biggest banks, including leading global investment bank Goldman Sachs, which offers a wide range of financial services, are expected to unveil strong quarterly stock-trading revenues. Goldman Sachs anticipates 27 per cent growth in S&P 500 earnings last quarter, largely driven by companies benefiting from artificial intelligence infrastructure spending. However, My Bui, an economist at AMP, cautioned that investors are questioning whether AI revenues can keep pace with rising borrowing costs, citing the shelved Firmus IPO as a sign of local investor scepticism. US inflation data for September is also due Tuesday, with Federal Reserve chairman Kevin Warsh’s fireside chat on Thursday to be closely watched for interest rate outlook cues.
