Westpac Morning Report - FJElite

After a volatile week that included a US Fed rate hike and US Treasury yields pushing towards 5%. market moves were relatively subdued on Friday. Equities were mixed, sovereign bond yields ticked higher, oil prices fell, and the US dollar was broadly unchanged.

In energy markets, reports indicated that Saudi Aramco told several European refiners they would receive no crude next month after a pipeline to the Red Sea was attacked. Despite the BoJ delivering a 25bp rate hike to 1.25%. the yen fell as Governor Ueda struck a cautious tone on further tightening. The move was also overshadowed by dissent from two appointees of PM Takaichi.

Key US equity indices were mixed as concerns about inflation and ongoing Middle East tensions offset optimism surrounding AI. The S&P 500 rose 0.2% to 7.651 to finish the week broadly unchanged. The Dow Jones Industrial Average fell 0.2% and finished the week 1.7% lower. The tech-heavy Nasdaq outperformed, gaining 0.4% on the day to end the week 0.7% higher.

European equities were weaker, weighed down by automakers after Volkswagen AG cut its profit outlook and ongoing Middle East tensions triggering concerns around global energy supplies. The Euro Stoxx 50 fell 1.4%. Germany's DAX dropped 1.6%, the FTSE 100 declined 1.5%. France's CAC lost 1.5%. and the Swiss Market Index closed 1.2% lower. Asian markets were mixed, with the Nikkei rising 1.4% and the Hang Seng gaining 0.6%. Locally, the S&P/ASX 200 was broadly unchanged at 8,731. Equity futures point to a softer open, with the SPI 200 down 0.7% to 8.711.

The bond market sell-off continued with yields ticking higher. The yield on the policy-sensitive two-year US Treasury rose 8bps to 4.74%, while the 10-year Treasury yield increased 7bps to 5.0%. Traders are now pricing around 33bps of rate hikes by the end of 2026 and almost 85bps by the end of 2027. Germany’s 10-year Bund yield rose 4bps to 3.52%. while UK 10-year gilt yields increased 7bps to 5.30%. Japanese 10-year government bond yields were unchanged at 2.99%.

Commodity markets were mixed overnight. The CRB Index fell 0.7%. while WTI crude oil declined 1.6% to US$100.30 a barrel. Bloomberg reported that Saudi Aramco is working to partially restore flows through its East-West pipeline within days following the recent drone attacks, with full capacity expected to be restored within six weeks. The company is also reportedly increasing exports from facilities located outside the Strait of Hormuz.

Gold rose 0.9% to US$4,379/oz. copper gained 0.2%, and coking coal increased 3.3%. In contrast, thermal coal fell 1.5%. iron ore edged 0.1% lower to US$97.10/t. and ACCU prices declined 4.3%.