RBA’s rate track in view as Wall St slides

Australian futures are pointing to a soft start for the S&P/ASX 200 index when trading opens across the Tasman, with the investors watching for any signs of future rate hikes in Reserve Bank of Australia’s policy review.

The bond selloff continued, with yields on government bonds pushing higher, after European Central Bank executive board member Isabel Schnabel said she’s comfortable with market expectations that the next move by the monetary authority will be an increase, while the US Federal Reserve’s tilt towards more cuts highlights the diverging rate paths among central bankers.

Meanwhile, the upcoming Fed meeting kept Wall Street nervous as the major indices nudged lower in a busy day for merger and acquisition activity as Paramount SkyDance lobbed in a hostile takeover bid for Warner Bros Discovery, attempting to spoil Netflix’s successful deal.

And locally, the government is poised to announce its overhaul of the Resource Management Act, with minister Chris Bishop taking the lead on reforming the consenting regime.

Hold and hike

The Reserve Bank of Australia is expected to keep the target cash rate at 3.6% at today’s policy review, with investors watching for any change in the forward track after recent data fuelling bets in bond markets for the central bank to start raising the benchmark rate next year.

Futures are pointing to a 0.3% decline for the ASX200 when trading opens across the Tasman today, while the kiwi dollar traded at 87.16 Australian cents at 7am in Auckland from 87.07 cents yesterday.

“While no one expects any rate change, there is keen interest in the tone of the meeting and forward guidance,” Bank of New Zealand senior market strategist Jason Wong said in a note. “The last meeting communicated a neutral bias, but recent strong data on the labour market, domestic demand, and inflation raises the question of whether the bank will signal a tightening bias, allowing the option of raising the cash rate as soon as the next meeting in February.”

That comes ahead of the Federal Reserve review on Wednesday in the US, which is expected to deliver another quarter-point cut to the federal funds rate and projections for further reductions in the new year.

Meanwhile, government bonds were sold off after ECB board member Isabel Schnabel said she was comfortable with market pricing a hike as the next move by the continent’s central bank, not that one is coming any time soon.

The yield on 10-year German bunds rose 6 basis points to 2.86%, while US treasuries were up 4 points at 4.18%. The yield on New Zealand’s equivalent was 4.45%. The kiwi dollar was little changed at 57.77 US cents at 7am from 57.85 cents yesterday.

Tentatively waiting

Stocks on Wall Street were muted ahead of the Fed meeting as the volatility index jumped 4.5%, with the S&P 500 down 0.2% in late trading, while the Dow Jones Industrial Average slipped 0.4%.

Corporate activity captivated investors during the session as Paramount SkyDance rallied after lobbing in a hostile takeover for Warner Bros Discovery – which was also higher – in an attempt to spoil the US$72 billion deal by streaming giant Netflix, which was softer on the day.

Meanwhile, International Business Machines gained after buying data infrastructure firm Confluent for US$9.3 billion, and Boeing advanced after completing its acquisition of Spirit AeroSystems.

Tesla declined after Morgan Stanley analysts downgraded their rating on the stock to ‘equal weight’ over the slowing electric vehicle adoption and rough trading outlook, while also raising their target price US$15 to US$425.

Stock markets across the Atlantic were mixed, with the UK’s FTSE 100 falling 0.2% and France’s CAC 40 dipping 0.1%, while Germany’s DAX 30 nudged up 0.1% as Europe’s biggest economy reported stronger industrial production than expected in October.

Uniliver’s ice cream spinout, The Magnum Ice Cream Co, had a soft debut, with its Euronext Amsterdam primary listing little changed from the reference price and the price dipping on the London exchange.

There’s no major local data scheduled for today, while RMA reform minister Chris Bishop is expected to announce an overhaul of the consenting legislation, with the Politick newsletter reporting the new law will place greater weight on centralised planning using national policy standards.

Reporting by Paul McBeth. Image from Stephen Mabbs on Unsplash.