The Reserve Bank of Australia (RBA) joined the Federal Reserve in a cautious tone, resisting immediate rate cuts and maintaining a tightening bias after its policy meeting. Investors, accustomed to the idea of rate cuts, received a reality check as policymakers signaled a patient approach, especially following a surprising surge in U.S. employment figures.
Despite a drop in Aussie inflation, the RBA’s reluctance prompted a shift in futures markets, delaying expectations for Australia’s first easing to later in the year. Concurrently, anticipated U.S. rate cuts, a key market driver, decreased from 160 basis points to 115 bps, aligning more closely with the Fed’s projection of 75 bps.
Contrary to expectations of a weakening U.S. dollar, it saw strength, reaching a three-month high. Simultaneously, equities and Treasuries faced selling pressure in recent sessions. The two-year U.S. Treasury yield, reflecting short-term interest rate expectations, neared a one-month peak, rising approximately 25 bps since the robust U.S. jobs report, effectively resembling a quarter-point rate hike.
In China, efforts by authorities to stabilize the stock market temporarily lifted sentiment. Central Huijin Investment, China’s state fund, expanded its ETF investments, injecting $17 billion into index-tracking funds last month. The move aimed to support Chinese stocks as the “national team” of state-backed investors engaged in buying during market declines. Despite this, doubts persist regarding the sustainability of such support.
China’s securities regulator announced plans to guide institutional investors to increase stock investments and encouraged listed companies to engage in share buybacks. Consequently, China’s blue-chip index rose over 1.5%, while the Shanghai Composite Index rebounded nearly 1%, recovering from the previous day’s five-year low.
