Markets Overview

  • ASX SPI 200 futures up 0.8% to 8,649.00
  • S&P 500 up 0.7% to 6,888.79
  • Dow Average up 1.1% to 48,090.38
  • Aussie up 0.4% to 0.6668 per US$
  • US 10-year yield fell 2.9bps to 4.1566%
  • Australia 3-year bond yield rose 6.1 bps to 4.20%
  • Australia 10-year bond yield rose 5.1 bps to 4.81%
  • Gold spot up 0.1% to $4,214.16
  • Brent futures up 0.9% to $62.48/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 147-Day Bills
  • 10:30: (AU) Australia to Sell A$2 Billion 119-Day Bills
  • 10:30: (AU) Australia to Sell A$2 Billion 91-Day Bills
  • 11:00: (AU) Australia to Sell A$150 Million 2% 2035 Inflation-Linked Bonds
  • 11:30: (AU) Nov. Employment Change, est. 20,000, prior 42,200
  • 11:30: (AU) Nov. Unemployment Rate, est. 4.4%, prior 4.3%
  • 11:30: (AU) Nov. Participation Rate, est. 67.0%, prior 67.0%
  • 11:30: (AU) Nov. Part Time Employment Change, prior -13,100
  • 11:30: (AU) Nov. Full Time Employment Change, prior 55,300

Australia’s November labor market report is likely to show solid job growth and a higher unemployment rate, according to Bloomberg Economics. Two of Australia’s top economists, Luci Ellis and Sally Auld, have different views on the RBA’s next interest-rate move, with Ellis seeing room for two more cuts and Auld expecting the next move to be up.

Bonds rose and stocks jumped as the Federal Reserve cut interest rates for a third consecutive time, and after Chair Jerome Powell voiced optimism that the economy will strengthen as the inflationary impact from tariffs proves temporary.

The S&P 500 closed 0.7% higher, just short of all-time highs. The Nasdaq 100 ended the day in the green while the Russell 2000 gauge of small-caps jumped 1.3% to a record. Oracle Corp. fell more than 6% in afterhours trading after second-quarter revenue missed estimates. The company’s fate is deeply tied to the artificial intelligence boom and a downbeat earnings could bleed through to other AI wagers.

The quarter-point reduction in the federal funds rate, along with the authorization of fresh Treasury purchases to supply bank reserves, allowed traders to look past a slight tamping down of expectations for further policy easing. Powell characterized the action as a “further normalization of our policy stance” which should serve to bolster the labor market without whipping up price pressures in the economy.

“Overall, a moderately hawkish cut not a max hawkish cut,” according to Evercore ISI’s Krishna Guha. He viewed Powell’s take at the press conference on productivity and growth as “very risk friendly.”

Nine out of 12 voters supported the decision to lower rates.   The cut and the Fed’s tone matched Wall Street expectations for a “hawkish cut,” while officials left intact their outlook for a single cut in 2026.

The impact of Trump’s on-again, off-again tariff offensive has been a key consideration in how the Fed approaches efforts to bring inflation back down to its 2% target. Without the levies, inflation is probably “in the low 2s” right now, Powell said at the press conference following the decision. And their impact is likely to weaken in the second half of next year.

Powell also underscored the importance of upcoming economic reports while advising caution on assessing household jobs readouts, given technical distortions after a government shutdown caused a data blackout.

“The Fed emphasized that future moves will be data-dependent, shifting firmly to a meeting-by-meeting approach,” said Daniel Siluk, a portfolio manager at Janus Henderson Investors. “Chair Powell reinforced this stance in his press conference, noting that the Committee sees today’s cut as a ‘prudent adjustment’ rather than the start of a new cycle.”

US bond yields were lower. The 10-year rate hit 4.14% after reaching the highest since the first week of September in the morning session. Swaps traders are still pricing in two more cuts over the next year.

Traders may be disregarding Powell and FOMC bears’ outlook given the imminent change in leadership, noted Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

“The Fed’s one rate cut outlook continues to be at odds with pre-meeting futures market pricing of two rate cuts in 2026,” Schulze said. “While we agree with the Fed that the need for further monetary support is limited, we caution investors to put less weight than normal on the dots since a new Fed chair will be at the helm starting in May.”

Chris Brigati, chief investment officer at SWBC, had expected the Fed to telegraph only one cut for next year, given the potential for consumer pricing pressures to reignite.

“The Fed is divided on how to proceed with rate cuts in 2026 given the delicate balance between job market weakness and still elevated inflation,” Brigati said. “There is also uncertainty about the new Fed chair, and that may also add to the central bank’s reluctance to make any major rate moves in the months leading up to Chair Powell’s term ending.”

Chris Brigati, chief investment officer at SWBC, had expected the Fed to telegraph only one cut for next year, given the potential for consumer pricing pressures to reignite.

“The Fed is divided on how to proceed with rate cuts in 2026 given the delicate balance between job market weakness and still elevated inflation,” Brigati said. “There is also uncertainty about the new Fed chair, and that may also add to the central bank’s reluctance to make any major rate moves in the months leading up to Chair Powell’s term ending.”

To Brad Conger, chief investment officer at Hirtle Callaghan, investors should “remain long duration.”

“Neither Powell’s comments nor the Dot Plot should matter for markets. Our view is that the job market is slowing,” he wrote. “The labor weakness will pressure inflation lower (slowly) and justify further cuts. It’s likely that Mr. Hassett will inherit a Fed Funds at 3%.”

Among individual movers, shares of Microsoft Corp. dropped 2.8% while GE Vernova Inc. rallied to a record, notching double-digit gains.

Earlier, Bank of Canada held interest rates steady saying current borrowing costs were appropriate to mitigate the trade war damage. Globally, a view that rate-cutting cycles are nearing their end has driven yields on a Bloomberg gauge of long-dated government debt to a 16-year high.

From here, the first US payrolls report in months is shaping up to be the next catalyst that will steer direction.