Lending Association

Market Recap: US records, China’s struggles, and a surprising sell-off

Last week, we witnessed more record-breaking moments in the US and Australian markets, while China faced an unwelcome five-year low, deepening its economic challenges.

However, as the week drew to a close, the impressive US January jobs report, along with upgrades to November and December data, triggered an unexpected sell-off. Traders sent the share price index plummeting by a daunting 54 points before the early Saturday close.

Despite the initial records, the S&P 500 closed at 4,958.61, surpassing its previous record of 4,927.93 set on Monday, marking a 1.1% gain. The Dow also reached a new record, adding 134.58 points, or 0.4%, to finish at 38,654.42. Meanwhile, the Nasdaq surged by 1.7% to reach 15,628.95.

For the week, the S&P 500 recorded a 1.4% increase, the Nasdaq Composite saw a 1.1% gain, and the Dow rose by 1.4%. This marked the fourth consecutive week of gains for these major benchmarks after a sluggish start to 2024.

However, the soaring US bond yields, exceeding 4%, are expected to reverse the rally in Australian Government securities, along with the optimism from last week, especially after a significant drop in inflation. This shift in sentiment is occurring in anticipation of the first Reserve Bank monetary policy board meeting and decision of the year, scheduled for tomorrow.

Consequently, the ASX 200 is likely to start significantly lower than its Friday record close of 7,699.40, which marked a gain of 111 points or 1.47%, contributing to the week’s overall gain of 1.91%.

Friday’s new record high followed two years of the market lagging behind better-performing markets in the US, Japan, and Europe.

Reflecting positive signs in inflation and official interest rates, most bond yields decreased, with Australian 10-year yields falling below 4%.

Simultaneously, the oil price, as well as metal and iron ore prices, experienced declines, while the Australian dollar weakened against the US dollar due to the robust payroll report. These factors, coupled with the yield on 10-year US Treasuries, are poised to continue shaping market dynamics.

The yield on the 10-year US Government note surged by 14 basis points to 4.02%, with yields on bonds ranging from 2 to 5 years witnessing increases of up to 20 points. Although not a repeat of last October’s 10-year yield reaching 5%, further strong jobs and economic data over the next few months could propel yields higher, diminishing the likelihood of a rate cut later this year.