The release of the US Federal Reserve's minutes from the Federal Open Market Committee (FOMC) meeting drew significant attention during the week.
While no changes were announced, one particular statement stood out: "Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate." This statement implies that further rate hikes can be expected unless economic data takes a downturn.
In response to this news, sovereign 10-year bond yields rose in Australia, the United States, and major European markets. The yield curves experienced slight steepening in Australia, while becoming less negative in the US.
Here are the top stories that shaped the week:
- US quit rate bounces in May, suggests "increased confidence": The quit rate in the US rose to 2.6% in May, indicating increased confidence in the labour market, according to NAB. Higher quit rates are often interpreted as a positive sign, reflecting employees' willingness to leave their current jobs in search of better opportunities. As a result, US Treasury yields increased, and expectations of lower Fed rates in 2024 softened.
- US manufacturing in "de facto recession": ISM PMI falls in June: The Institute for Supply Management (ISM) Purchasing Managers' Index (PMI) fell in June, coming in below expectations. This decline marked the seventh consecutive month of contraction in US manufacturing. The figures highlight what NAB described as a "de facto recession" in the manufacturing sector. Consequently, US Treasury yields rose modestly, and expectations of Fed rate cuts in 2024 softened.
- "Direction of change is clear"; job ads index down 2.5% in June: In June, the job ads index in Australia declined by 2.5%. While this decrease is concerning, ANZ Bank noted that the index remains 47.5% higher than pre-pandemic levels. Additionally, the ratio of the ad index to the workforce fell to 0.98, indicating a decrease in job opportunities relative to the labour force. As a result, Australian Commonwealth Government Bond (ACGB) yields declined noticeably, and expectations of rate hikes softened. ANZ emphasised that the direction of change is clear, implying ongoing challenges in the job market.
In the market summary, various interest rates and bond yields were reported. Notably, the cash rate stood at 4.10%, the 3-month Bank Bill Swap Rate (BBSW) settled at 4.30%, and Australian government bonds experienced yield increases across various tenures.
The US bond market also saw some movement, with the 2-year bond rate at 4.95%, the 10-year bond rate at 4.07%, and the 30-year bond rate at 4.04%.
Looking beyond interest rates, additional stories made headlines during the week.
The US non-farm payrolls numbers suggested modest slowing, while the June ADP report surprised with raised non-farm forecasts. Furthermore, the private inflation index showed a slight slowdown, increasing by 0.1% in June. In the housing sector, home loan approvals bounced in May, although further weakness is expected.
The spike in NSW apartment approvals contributed to the overall increase in May home approvals.
The weekly review also offered insights into pricing and commentary across various financial instruments, including term deposits, government bonds, semi-government bonds, cash, corporate bonds, hybrids, managed funds, ETFs, and listed investment companies and trusts.
As the interest rate landscape continues to evolve, market participants will closely monitor economic data and central bank announcements for indications of future rate movements and their potential impact on the financial markets.
