Markets alert, and a little alarmed
They say a week is a long time in politics, but how about in financial markets?!
Last week all the media chat in Australia was about whether interest rates would head to above 5 per cent/
And yet within a few trades we see the 3-year bond yield suddenly trading below 3.4 per cent, which should lead to a swift decline in funding costs for Aussie banks.
The triggering of the
Sahm rule recession indicator in the US and Warren Buffett offloading 56 per cent of his Apple stock holding were said to be among some of the warning signals, while Japanese currency moves following the recent lift in interest rates have sent a ripple of fear across markets.
Before you know it, Japan's Nikkei 225 index suffered its worst crash since 1987 in falling 12.4 per cent in a single day.
US tech stocks have dropped back as investors begin to worry about a US recession, with the NASDAQ 100 down from 20,675 at the July highs to around 17,500 early in today's trade, while the S&P 500 is also down around 10 per cent from its highs.
Australia's ASX 200 has pulled back from around 8,100 to 7,650, but in fairness that only takes the market index back to where it was in May.
Markets reset
I've found a good motto in adult life to be that things are rarely as good as bad as they seem.
And although there is clearly a risk of a US recession, the Federal Reserve has a lot of firepower at its disposal, beginning with at least 50 basis points of rate cuts next month, and plenty more to come before the year is out if required.
In fact, even before I finished writing this blog post the ISM gauge for employment came in far stronger than expected.
Although Australia is not as far along on this journey due to being locked down for longer, the Melbourne Institute inflation gauge today dropped back from 3.2 per cent to 2.8 per cent over the year to July, for the lowest annual result since 2021.
An interest rate cut as soon as November for Australia shouldn't be ruled out, given the parlous state of the consumption economy.
There hasn't been much volatility in markets of late, and stock markets have been absolutely ripping here, so most likely we were just due for a bit of a recalibration.
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In other Aussie economy news, New South Wales Premier Minns ordered government workers to be back in the office from Monday, calling to an end the working from home trend that's been prevalent for the past few years.
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