Global markets
Markets continued to gyrate as rising global bond yields, high oil prices, concerns about AI capital expenditure and persistent inflation data challenged investors. Over the week the ASX 200 rose 0.2% and global equities were flat (MSCI World +0.1%), while gold fell 3.4% and iron ore fell 4.2%. September closed weak, with all major equity and bond indices lower. Unhedged global equities was the one positive, helped by a 3.1% monthly fall in the A$ against the US$.
Oil and the Middle East
To combat higher oil prices, the G7 agreed to release a further 100mn barrels of diesel and other petroleum reserves through the International Energy Agency. Tanker traffic through the Strait of Hormuz remains below pre-war levels, although oil flow is rising as Saudi Arabia and the UAE pivot supply through pipelines that bypass it. Brent crude rose a further 4.9% over the week and is now up 41.3% over the past year. Both plan further pipeline investment, while the US blockade crimps Iranian exports and a third US aircraft carrier heads to the region.
US data and the Fed
US payrolls (29k) missed market estimates, with downward revisions to the prior two months. The unemployment rate held at 4.2%. European bond yields fell 20bp over the week as markets priced a softer growth outlook. This reduces the near-term likelihood of a Fed hike, although inflation remains the Fed’s main concern ahead of the November mid-term elections.
The Australian outlook
We believe the RBA will wait until its December Board meeting, although a November rise remains possible. This week the focus is on US PMI and consumer sentiment data, and in Australia on consumer confidence and the RBA minutes. Domestically, the Information Technology sector led the market (+7.3%) while Resources lagged (−0.6%). We expect confidence to keep waning, adding to a difficult near-term growth backdrop. This may see the RBA pause, but inflation above 3.5% does not rule out further hikes.