5th August, 2022

Market Wrap

The week ended?August 5, 2022

U.S. equities finished the week mixed, while Treasury yields rose in response to strong jobs data for July, which shifted the expectation for more aggressive rate hikes by the Federal Reserve. The NASDAQ added over 2% while the S&P 500 and the Dow were little changed.

Local shares steadily gained over the week, the ASX200 finishing up 1%. Technology stocks were the best performers while the Energy sector lagged.

Friday's robust jobs report added to the selling pressure on government bonds, sending yields sharply higher. The 10-year U.S. Treasury bond yield climbed to 2.83% on Friday afternoon, up from 2.67% at the end of the previous week. Unsurprisingly the most significant move came in the short end; the U.S. 2-year jumped 35bps to 3.23%. The 40bps spread between the 10/2-year is the largest since the two yields first inverted a little over four weeks ago. In an ominous sign, inversions have rarely exceeded 20bps since the early 1980s and reached a maximum of 50bps in 1989 and 2000, according to Moody's Analytics.

News and Data

Australia

The RBA announced a 50bps hike on Tuesday, lifting the cash rate to 1.85%. The central bank cut economic growth projections and raised inflation forecasts in the Monetary Policy Statement. As measured by GDP, the economy is expected to expand by 3.25% by year-end and then ease to 1.75% in the following two years. Headline inflation is expected to peak at 7.75% by the end of 2022.

United States

Jobs data revealed:

- July non-farm payrolls rose by 528,000 (250k surveyed)

- The unemployment rate fell from 3.60% to 3.50%

- MoM average hourly earnings rose by 0.50% (0.30% surveyed)

Consumer credit rose by US$40.15 billion in June vs expectations of US$25 billion.

Global

The Bank of England (BOE) raised rates for a sixth consecutive month, lifting 50bps to 1.75%. The central bank's forecasts put inflation peaking at 13% by the end of this year before normalising into the target band by 2024.

The Week Ahead

Key Events

• Australian reporting season continues
• U.S. July Consumer Price index (CPI)
• U.S. July Producer Price index (PPI)
• U.S University of Michigan consumer confidence survey

New Issues

• Australia and New Zealand Banking Group Limited (ANZ) issued a new Tier 2 10NC5; the deal received heavy demand and was set at a final margin of 3m BBSW/SQ ASW +270bps
• Westpac (WBC) launched a 3Y AUD Senior Unsecured MTN, issuing both an FRN and FXD. Final pricing at 3mBBSW/SQ ASW+80bps
• National Westminster Bank (NatWest) launched a 3Y FXD OpCo Kangaroo bond. The deal was priced at SQ ASW+182

Market Data

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