S&P 500, Nasdaq strong; Deckers soars on UGG demand
European Commission President Ursula von der Leyen will meet US President Donald Trump on Sunday in Scotland after EU officials and diplomats said they expected to reach a framework trade deal this weekend.
Trump said earlier that the odds of a US-EU trade deal were "50-50".
Deckers Outdoor soared 11 per cent after results beat quarterly estimates, with strong demand in international markets.
Intel tumbled 8.5 per cent after the chipmaker forecast steeper quarterly losses than expected and announced plans to slash jobs.
Wall Street has surged to record highs in recent weeks, thanks to upbeat quarterly earnings, trade deals with Japan and the Philippines, and expectations that the White House will cement more agreements to avoid elevated tariffs threatened by Trump.
"The market has been anticipating that the deals are going to get done," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
"Personally, I have a bit more scepticism. You've got to be careful, because if they don't get done, there is more room for disappointment than there is upside."
The S&P 500 climbed 0.40 per cent to end the session at 6,388.64 points.
The Nasdaq gained 0.24 per cent to 21,108.32 points, while the Dow Jones Industrial Average rose 0.47 per cent to 44,901.92 points.
Nine of the 11 S&P 500 sector indexes rose, led by materials, up 1.17 per cent, followed by a 0.98 per cent gain in industrials.
For the week, the S&P 500 climbed 1.5 per cent, the Nasdaq added 1.0 per cent and the Dow rose 1.3 per cent.
The S&P 500 set a closing record every day this week. The last time the index had a "perfect week" of closing highs, Monday through Friday, was in November 2021, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Investors next week will focus on the US Federal Reserve, with policymakers on Thursday expected to hold interest rates steady as the central bank weighs the impact of tariffs on inflation.
Traders see about a 60 per cent chance of a rate cut in September, according to CME's FedWatch tool.
Trump said on Friday he believed that Fed Chair Jerome Powell might be ready to lower rates.
Trump made a rare visit to the Fed on Thursday after calling Powell a "numbskull" earlier in the week for failing to slash rates.
Charter Communications slumped 18 per cent after the cable giant reported a deeper-than-expected broadband subscriber loss, hurt by competition from wireless carriers bundling high-speed internet services with 5G mobile plans.
Paramount Global dipped 1.6 per cent after US regulators approved its $US8.4-billion ($A12.8 billion) merger with Skydance Media.
Health insurer Centene rose 6.1 per cent after it said it expects to deliver improved profitability in its three government-backed healthcare insurance businesses in 2026.
S&P 500 companies are expected on average to increase their second-quarter earnings by 7.7 per cent year over year, according to LSEG I/B/E/S, with most of those gains coming from heavyweight tech-related companies.
Companies reporting next week include Microsoft , Apple, Amazon and Meta Platforms .
Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.
The S&P 500 posted 45 new highs and 6 new lows; the Nasdaq recorded 68 new highs and 54 new lows.
Volume on US exchanges was relatively light, with 17.7 billion shares traded, compared to an average of 18.1 billion shares over the previous 20 sessions.
The S&P 500 and Nasdaq notched record high closes, lifted by optimism that the US could soon reach a trade deal with the European Union, while Deckers Outdoor surged following a strong quarter for the maker of UGG boots and Hoka sneakers.
European Commission President Ursula von der Leyen will meet US President Donald Trump on Sunday in Scotland after EU officials and diplomats said they expected to reach a framework trade deal this weekend.
Trump said earlier that the odds of a US-EU trade deal were "50-50".
Deckers Outdoor soared 11 per cent after results beat quarterly estimates, with strong demand in international markets.
Intel tumbled 8.5 per cent after the chipmaker forecast steeper quarterly losses than expected and announced plans to slash jobs.
Wall Street has surged to record highs in recent weeks, thanks to upbeat quarterly earnings, trade deals with Japan and the Philippines, and expectations that the White House will cement more agreements to avoid elevated tariffs threatened by Trump.
"The market has been anticipating that the deals are going to get done," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
"Personally, I have a bit more scepticism. You've got to be careful, because if they don't get done, there is more room for disappointment than there is upside."
The S&P 500 climbed 0.40 per cent to end the session at 6,388.64 points.
The Nasdaq gained 0.24 per cent to 21,108.32 points, while the Dow Jones Industrial Average rose 0.47 per cent to 44,901.92 points.
Nine of the 11 S&P 500 sector indexes rose, led by materials, up 1.17 per cent, followed by a 0.98 per cent gain in industrials.
For the week, the S&P 500 climbed 1.5 per cent, the Nasdaq added 1.0 per cent and the Dow rose 1.3 per cent.
The S&P 500 set a closing record every day this week. The last time the index had a "perfect week" of closing highs, Monday through Friday, was in November 2021, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Investors next week will focus on the US Federal Reserve, with policymakers on Thursday expected to hold interest rates steady as the central bank weighs the impact of tariffs on inflation.
Traders see about a 60 per cent chance of a rate cut in September, according to CME's FedWatch tool.
Trump said on Friday he believed that Fed Chair Jerome Powell might be ready to lower rates.
Trump made a rare visit to the Fed on Thursday after calling Powell a "numbskull" earlier in the week for failing to slash rates.
Charter Communications slumped 18 per cent after the cable giant reported a deeper-than-expected broadband subscriber loss, hurt by competition from wireless carriers bundling high-speed internet services with 5G mobile plans.
Paramount Global dipped 1.6 per cent after US regulators approved its $US8.4-billion ($A12.8 billion) merger with Skydance Media.
Health insurer Centene rose 6.1 per cent after it said it expects to deliver improved profitability in its three government-backed healthcare insurance businesses in 2026.
S&P 500 companies are expected on average to increase their second-quarter earnings by 7.7 per cent year over year, according to LSEG I/B/E/S, with most of those gains coming from heavyweight tech-related companies.
Companies reporting next week include Microsoft , Apple, Amazon and Meta Platforms .
Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.
The S&P 500 posted 45 new highs and 6 new lows; the Nasdaq recorded 68 new highs and 54 new lows.
Volume on US exchanges was relatively light, with 17.7 billion shares traded, compared to an average of 18.1 billion shares over the previous 20 sessions.
The S&P 500 and Nasdaq notched record high closes, lifted by optimism that the US could soon reach a trade deal with the European Union, while Deckers Outdoor surged following a strong quarter for the maker of UGG boots and Hoka sneakers.
European Commission President Ursula von der Leyen will meet US President Donald Trump on Sunday in Scotland after EU officials and diplomats said they expected to reach a framework trade deal this weekend.
Trump said earlier that the odds of a US-EU trade deal were "50-50".
Deckers Outdoor soared 11 per cent after results beat quarterly estimates, with strong demand in international markets.
Intel tumbled 8.5 per cent after the chipmaker forecast steeper quarterly losses than expected and announced plans to slash jobs.
Wall Street has surged to record highs in recent weeks, thanks to upbeat quarterly earnings, trade deals with Japan and the Philippines, and expectations that the White House will cement more agreements to avoid elevated tariffs threatened by Trump.
"The market has been anticipating that the deals are going to get done," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
"Personally, I have a bit more scepticism. You've got to be careful, because if they don't get done, there is more room for disappointment than there is upside."
The S&P 500 climbed 0.40 per cent to end the session at 6,388.64 points.
The Nasdaq gained 0.24 per cent to 21,108.32 points, while the Dow Jones Industrial Average rose 0.47 per cent to 44,901.92 points.
Nine of the 11 S&P 500 sector indexes rose, led by materials, up 1.17 per cent, followed by a 0.98 per cent gain in industrials.
For the week, the S&P 500 climbed 1.5 per cent, the Nasdaq added 1.0 per cent and the Dow rose 1.3 per cent.
The S&P 500 set a closing record every day this week. The last time the index had a "perfect week" of closing highs, Monday through Friday, was in November 2021, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Investors next week will focus on the US Federal Reserve, with policymakers on Thursday expected to hold interest rates steady as the central bank weighs the impact of tariffs on inflation.
Traders see about a 60 per cent chance of a rate cut in September, according to CME's FedWatch tool.
Trump said on Friday he believed that Fed Chair Jerome Powell might be ready to lower rates.
Trump made a rare visit to the Fed on Thursday after calling Powell a "numbskull" earlier in the week for failing to slash rates.
Charter Communications slumped 18 per cent after the cable giant reported a deeper-than-expected broadband subscriber loss, hurt by competition from wireless carriers bundling high-speed internet services with 5G mobile plans.
Paramount Global dipped 1.6 per cent after US regulators approved its $US8.4-billion ($A12.8 billion) merger with Skydance Media.
Health insurer Centene rose 6.1 per cent after it said it expects to deliver improved profitability in its three government-backed healthcare insurance businesses in 2026.
S&P 500 companies are expected on average to increase their second-quarter earnings by 7.7 per cent year over year, according to LSEG I/B/E/S, with most of those gains coming from heavyweight tech-related companies.
Companies reporting next week include Microsoft , Apple, Amazon and Meta Platforms .
Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.
The S&P 500 posted 45 new highs and 6 new lows; the Nasdaq recorded 68 new highs and 54 new lows.
Volume on US exchanges was relatively light, with 17.7 billion shares traded, compared to an average of 18.1 billion shares over the previous 20 sessions.
The S&P 500 and Nasdaq notched record high closes, lifted by optimism that the US could soon reach a trade deal with the European Union, while Deckers Outdoor surged following a strong quarter for the maker of UGG boots and Hoka sneakers.
European Commission President Ursula von der Leyen will meet US President Donald Trump on Sunday in Scotland after EU officials and diplomats said they expected to reach a framework trade deal this weekend.
Trump said earlier that the odds of a US-EU trade deal were "50-50".
Deckers Outdoor soared 11 per cent after results beat quarterly estimates, with strong demand in international markets.
Intel tumbled 8.5 per cent after the chipmaker forecast steeper quarterly losses than expected and announced plans to slash jobs.
Wall Street has surged to record highs in recent weeks, thanks to upbeat quarterly earnings, trade deals with Japan and the Philippines, and expectations that the White House will cement more agreements to avoid elevated tariffs threatened by Trump.
"The market has been anticipating that the deals are going to get done," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
"Personally, I have a bit more scepticism. You've got to be careful, because if they don't get done, there is more room for disappointment than there is upside."
The S&P 500 climbed 0.40 per cent to end the session at 6,388.64 points.
The Nasdaq gained 0.24 per cent to 21,108.32 points, while the Dow Jones Industrial Average rose 0.47 per cent to 44,901.92 points.
Nine of the 11 S&P 500 sector indexes rose, led by materials, up 1.17 per cent, followed by a 0.98 per cent gain in industrials.
For the week, the S&P 500 climbed 1.5 per cent, the Nasdaq added 1.0 per cent and the Dow rose 1.3 per cent.
The S&P 500 set a closing record every day this week. The last time the index had a "perfect week" of closing highs, Monday through Friday, was in November 2021, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Investors next week will focus on the US Federal Reserve, with policymakers on Thursday expected to hold interest rates steady as the central bank weighs the impact of tariffs on inflation.
Traders see about a 60 per cent chance of a rate cut in September, according to CME's FedWatch tool.
Trump said on Friday he believed that Fed Chair Jerome Powell might be ready to lower rates.
Trump made a rare visit to the Fed on Thursday after calling Powell a "numbskull" earlier in the week for failing to slash rates.
Charter Communications slumped 18 per cent after the cable giant reported a deeper-than-expected broadband subscriber loss, hurt by competition from wireless carriers bundling high-speed internet services with 5G mobile plans.
Paramount Global dipped 1.6 per cent after US regulators approved its $US8.4-billion ($A12.8 billion) merger with Skydance Media.
Health insurer Centene rose 6.1 per cent after it said it expects to deliver improved profitability in its three government-backed healthcare insurance businesses in 2026.
S&P 500 companies are expected on average to increase their second-quarter earnings by 7.7 per cent year over year, according to LSEG I/B/E/S, with most of those gains coming from heavyweight tech-related companies.
Companies reporting next week include Microsoft , Apple, Amazon and Meta Platforms .
Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.
The S&P 500 posted 45 new highs and 6 new lows; the Nasdaq recorded 68 new highs and 54 new lows.
Volume on US exchanges was relatively light, with 17.7 billion shares traded, compared to an average of 18.1 billion shares over the previous 20 sessions.
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The Advertiser
2 hours ago
- The Advertiser
India will continue to buy Russian oil, officials say
India will keep purchasing oil from Russia despite US President Donald Trump's threats of penalties, two Indian government sources say, not wishing to be identified due to the sensitivity of the matter. "These are long-term oil contracts," one of the sources said. "It is not so simple to just stop buying overnight." Trump indicated in a Truth Social post in July that India would face additional penalties for purchases of Russian arms and oil. On Friday, Trump told reporters that he had heard India would no longer be buying oil from Russia. The New York Times on Saturday quoted two unnamed senior Indian officials as saying there had been no change in Indian government policy, with one official saying the government had "not given any direction to oil companies" to cut back imports from Russia. Reuters reported this week that Indian state refiners stopped buying Russian oil in the past week after discounts narrowed in July. "On our energy sourcing requirements ... we look at what is there available in the markets, what is there on offer, and also what is the prevailing global situation or circumstances," India's foreign ministry spokesperson Randhir Jaiswal told reporters during a regular briefing on Friday. Jaiswal said India had a "steady and time-tested partnership" with Russia, and that New Delhi's relations with various countries stood on their merit and should not be viewed from the prism of a third country. The White House did not immediately respond to requests for comment. Indian refiners are pulling back from Russian crude as discounts shrink to their lowest since 2022, when Western sanctions were first imposed on Moscow, due to lower Russian exports and steady demand, sources said earlier this week. The country's state refiners - Indian Oil Corp, Hindustan Petroleum Corp, Bharat Petroleum Corp and Mangalore Refinery Petrochemical Ltd - have not sought Russian crude in the past week or so, four sources familiar with the refiners' purchase plans told Reuters. On July 14, Trump threatened 100 per cent tariffs on countries that buy Russian oil unless Moscow reaches a major peace deal with Ukraine. Russia is the top supplier to India, responsible for about 35 per cent of India's overall supplies. Russia continued to be the top oil supplier to India during the first six months of 2025, accounting for about 35 per cent of India's overall supplies, followed by Iraq, Saudi Arabia and the United Arab Emirates. India, the world's third-largest oil importer and consumer, received about 1.75 million barrels per day of Russian oil in January-June this year, up one per cent from a year ago, according to data provided to Reuters by sources. Nayara Energy, a major buyer of Russian oil, was recently sanctioned by the European Union as the refinery is majority-owned by Russian entities, including oil major Rosneft. In July, Reuters reported that Nayara's chief executive had resigned after the imposition of EU sanctions and company veteran Sergey Denisov had been appointed as CEO. Three vessels laden with oil products from Nayara Energy have yet to discharge their cargoes, hindered by the new EU sanctions on the Russia-backed refiner, Reuters reported in July. India will keep purchasing oil from Russia despite US President Donald Trump's threats of penalties, two Indian government sources say, not wishing to be identified due to the sensitivity of the matter. "These are long-term oil contracts," one of the sources said. "It is not so simple to just stop buying overnight." Trump indicated in a Truth Social post in July that India would face additional penalties for purchases of Russian arms and oil. On Friday, Trump told reporters that he had heard India would no longer be buying oil from Russia. The New York Times on Saturday quoted two unnamed senior Indian officials as saying there had been no change in Indian government policy, with one official saying the government had "not given any direction to oil companies" to cut back imports from Russia. Reuters reported this week that Indian state refiners stopped buying Russian oil in the past week after discounts narrowed in July. "On our energy sourcing requirements ... we look at what is there available in the markets, what is there on offer, and also what is the prevailing global situation or circumstances," India's foreign ministry spokesperson Randhir Jaiswal told reporters during a regular briefing on Friday. Jaiswal said India had a "steady and time-tested partnership" with Russia, and that New Delhi's relations with various countries stood on their merit and should not be viewed from the prism of a third country. The White House did not immediately respond to requests for comment. Indian refiners are pulling back from Russian crude as discounts shrink to their lowest since 2022, when Western sanctions were first imposed on Moscow, due to lower Russian exports and steady demand, sources said earlier this week. The country's state refiners - Indian Oil Corp, Hindustan Petroleum Corp, Bharat Petroleum Corp and Mangalore Refinery Petrochemical Ltd - have not sought Russian crude in the past week or so, four sources familiar with the refiners' purchase plans told Reuters. On July 14, Trump threatened 100 per cent tariffs on countries that buy Russian oil unless Moscow reaches a major peace deal with Ukraine. Russia is the top supplier to India, responsible for about 35 per cent of India's overall supplies. Russia continued to be the top oil supplier to India during the first six months of 2025, accounting for about 35 per cent of India's overall supplies, followed by Iraq, Saudi Arabia and the United Arab Emirates. India, the world's third-largest oil importer and consumer, received about 1.75 million barrels per day of Russian oil in January-June this year, up one per cent from a year ago, according to data provided to Reuters by sources. Nayara Energy, a major buyer of Russian oil, was recently sanctioned by the European Union as the refinery is majority-owned by Russian entities, including oil major Rosneft. In July, Reuters reported that Nayara's chief executive had resigned after the imposition of EU sanctions and company veteran Sergey Denisov had been appointed as CEO. Three vessels laden with oil products from Nayara Energy have yet to discharge their cargoes, hindered by the new EU sanctions on the Russia-backed refiner, Reuters reported in July. India will keep purchasing oil from Russia despite US President Donald Trump's threats of penalties, two Indian government sources say, not wishing to be identified due to the sensitivity of the matter. "These are long-term oil contracts," one of the sources said. "It is not so simple to just stop buying overnight." Trump indicated in a Truth Social post in July that India would face additional penalties for purchases of Russian arms and oil. On Friday, Trump told reporters that he had heard India would no longer be buying oil from Russia. The New York Times on Saturday quoted two unnamed senior Indian officials as saying there had been no change in Indian government policy, with one official saying the government had "not given any direction to oil companies" to cut back imports from Russia. Reuters reported this week that Indian state refiners stopped buying Russian oil in the past week after discounts narrowed in July. "On our energy sourcing requirements ... we look at what is there available in the markets, what is there on offer, and also what is the prevailing global situation or circumstances," India's foreign ministry spokesperson Randhir Jaiswal told reporters during a regular briefing on Friday. Jaiswal said India had a "steady and time-tested partnership" with Russia, and that New Delhi's relations with various countries stood on their merit and should not be viewed from the prism of a third country. The White House did not immediately respond to requests for comment. Indian refiners are pulling back from Russian crude as discounts shrink to their lowest since 2022, when Western sanctions were first imposed on Moscow, due to lower Russian exports and steady demand, sources said earlier this week. The country's state refiners - Indian Oil Corp, Hindustan Petroleum Corp, Bharat Petroleum Corp and Mangalore Refinery Petrochemical Ltd - have not sought Russian crude in the past week or so, four sources familiar with the refiners' purchase plans told Reuters. On July 14, Trump threatened 100 per cent tariffs on countries that buy Russian oil unless Moscow reaches a major peace deal with Ukraine. Russia is the top supplier to India, responsible for about 35 per cent of India's overall supplies. Russia continued to be the top oil supplier to India during the first six months of 2025, accounting for about 35 per cent of India's overall supplies, followed by Iraq, Saudi Arabia and the United Arab Emirates. India, the world's third-largest oil importer and consumer, received about 1.75 million barrels per day of Russian oil in January-June this year, up one per cent from a year ago, according to data provided to Reuters by sources. Nayara Energy, a major buyer of Russian oil, was recently sanctioned by the European Union as the refinery is majority-owned by Russian entities, including oil major Rosneft. In July, Reuters reported that Nayara's chief executive had resigned after the imposition of EU sanctions and company veteran Sergey Denisov had been appointed as CEO. Three vessels laden with oil products from Nayara Energy have yet to discharge their cargoes, hindered by the new EU sanctions on the Russia-backed refiner, Reuters reported in July. India will keep purchasing oil from Russia despite US President Donald Trump's threats of penalties, two Indian government sources say, not wishing to be identified due to the sensitivity of the matter. "These are long-term oil contracts," one of the sources said. "It is not so simple to just stop buying overnight." Trump indicated in a Truth Social post in July that India would face additional penalties for purchases of Russian arms and oil. On Friday, Trump told reporters that he had heard India would no longer be buying oil from Russia. The New York Times on Saturday quoted two unnamed senior Indian officials as saying there had been no change in Indian government policy, with one official saying the government had "not given any direction to oil companies" to cut back imports from Russia. Reuters reported this week that Indian state refiners stopped buying Russian oil in the past week after discounts narrowed in July. "On our energy sourcing requirements ... we look at what is there available in the markets, what is there on offer, and also what is the prevailing global situation or circumstances," India's foreign ministry spokesperson Randhir Jaiswal told reporters during a regular briefing on Friday. Jaiswal said India had a "steady and time-tested partnership" with Russia, and that New Delhi's relations with various countries stood on their merit and should not be viewed from the prism of a third country. The White House did not immediately respond to requests for comment. Indian refiners are pulling back from Russian crude as discounts shrink to their lowest since 2022, when Western sanctions were first imposed on Moscow, due to lower Russian exports and steady demand, sources said earlier this week. The country's state refiners - Indian Oil Corp, Hindustan Petroleum Corp, Bharat Petroleum Corp and Mangalore Refinery Petrochemical Ltd - have not sought Russian crude in the past week or so, four sources familiar with the refiners' purchase plans told Reuters. On July 14, Trump threatened 100 per cent tariffs on countries that buy Russian oil unless Moscow reaches a major peace deal with Ukraine. Russia is the top supplier to India, responsible for about 35 per cent of India's overall supplies. Russia continued to be the top oil supplier to India during the first six months of 2025, accounting for about 35 per cent of India's overall supplies, followed by Iraq, Saudi Arabia and the United Arab Emirates. India, the world's third-largest oil importer and consumer, received about 1.75 million barrels per day of Russian oil in January-June this year, up one per cent from a year ago, according to data provided to Reuters by sources. Nayara Energy, a major buyer of Russian oil, was recently sanctioned by the European Union as the refinery is majority-owned by Russian entities, including oil major Rosneft. In July, Reuters reported that Nayara's chief executive had resigned after the imposition of EU sanctions and company veteran Sergey Denisov had been appointed as CEO. Three vessels laden with oil products from Nayara Energy have yet to discharge their cargoes, hindered by the new EU sanctions on the Russia-backed refiner, Reuters reported in July.
News.com.au
9 hours ago
- News.com.au
Donald Trump's tariffs have a large role to play in Australia's interest rates cycle
When the RBA handed down its most interest rate decision last month, it shocked economists and the public by holding the cash rate at 3.85 per cent. The widely held consensus had been strongly in favour of another 0.25 per cent cut to follow the previous one in May. In the weeks since the Reserve Bank's decision, economic data has been mixed, with some elements such as the recent retail sales report providing support for the RBA's message of caution, while on the other hand, the recent substantial rise in unemployment was far more supportive of the cash rate being cut. In several important ways the RBA's uncertainty about the path forward for interest rates is arguably justified. Trump, Trade And Global Uncertainty At a global scale, the implementation of the Trump Administration's various tariffs and threats of even greater trade barriers to nation's not willing to make a swift agreement with the United States remains a source of major questions for central banks around the world. The challenge posed by tariffs to the path of interest rates was recently summed up by JPMorgan Chase (the world's most valuable bank) CEO Jamie Dimon at an event hosted by the Irish government. 'The market is pricing a 20% chance (of rising interest rates). I would price in a 40-50% chance I would put that as a cause for concern,' Dimon said. Dimon went on to cite the Trump administration's tariffs, the restructuring of global trade and the growing U.S government budget deficit as inflationary forces impacting the path forward for interest rates. While U.S interest rates can and do rise and fall independently of those of other nations, they are also the most important global benchmark. Theoretically, the U.S Federal Reserve holding a higher interest rate than the RBA can have two major knock on effects for Australia. It can force a repricing of Australian interest rates to better reflect the global benchmark. Or if the RBA chooses to allow the distance between the RBA cash rate and the U.S federal funds rate to expand, it places downward pressure on the value of the Australian dollar in a vacuum. A Mixed Bag For Australia At a domestic level, there is also a high degree of uncertainty impacting the path forward for interest rates. With government currently the driving force behind broader economic growth and employment growth in generally taxpayer funded sectors of the economy (public administration, education and, healthcare and social assistance) the main driver of the resilience of the labour market, it's challenging for the RBA to know exactly when a rate cut would be appropriate. Meanwhile, the deeply mixed nature of retail sales growth depending on the lens with which it is viewed also complicates matters. For example, looking at the latest headline retail sales showing a 1.2 per cent rise in turnover or June in a vacuum, it would be hard to justify a rate cut. But when the focus is shifted to an inflation adjusted figure that looks at retail sales per working age adult, the data for the June quarter reveals a return to recession in per capita terms. This is due to expansion of the population, the vast majority of which is occurring via migration acting as more or less the only driver of the retail economy in aggregate. History And Market Pricing Based on RBA rate cut cycles seen in the last 35 years, where the cash rate has been cut by at least one percentage point, the average rate cut cycle sees mortgage rates fall by approximately 33.3 per cent. If we remove the rate cut cycles driven by major emergencies such as the Global Financial Crisis and the early 1990s recession, the average reduction in mortgage rates falls to 27.0 per cent. If we were to see a similar reduction in interest rates today, we would see a total fall in the cash rate of approximately 1.75 percentage points. This would leave the average payable rate on a variable mortgage for an owner occupier at 4.58 per cent. In terms of the pricing of the future path of interest rates from financial markets, the next full 0.25 per cent rate cut is priced in for the RBA's August meeting, with the next expected to follow in November. Overall, market pricing has interest rates falling by a total 1.33 percentage points, with the cash rate hitting a low of 3.02 per cent during the middle of next year. The Outlook For Rates While the direction of interest rates is ultimately in the hands of the Reserve Bank, under the current circumstances government is also playing a significantly greater role in influencing the path forward than has been historically normal. With the growth in the domestic consumer economy concentrated in the 65 and over age demographic and otherwise reliant on population growth, the level of migration set by the Albanese government will be vital in determining to what degree aggregate consumer demand is weak enough to warrant further cuts in interest rates. Meanwhile, the level of employment growth stemming from government policy will also be a key consideration. If the current pullback continues without a corresponding increase from the private sector, the urgency and magnitude with which the RBA approaches the ongoing rate cut cycle may intensify significantly. Ultimately, it's entirely possible that events beyond our shores end up playing a significant role in the direction of Australian interest rates, whether that be as a result of President Trump's tariffs or the Chinese economy slowing more swiftly than expected due to the ongoing trade conflict and still simmering domestic economic issues.
Sydney Morning Herald
10 hours ago
- Sydney Morning Herald
The $8.6 trillion bank tweak that risks sparking the next financial crisis
Part of this is intentional and means banks around the world have an extra, easy-to-calculate buffer on top of the framework of other capital requirements that are linked to risk. However, America's biggest banks say the crude calculation stops them from snapping up US Treasuries during times of stress because doing so comes at too high a price. J.P. Morgan boss Jamie Dimon has warned that this blunt instrument means US Treasuries are branded 'far riskier' than the reality. 'These rules effectively discourage banks from acting as intermediaries in the financial markets – and this would be particularly painful at precisely the wrong time: when markets get volatile,' he wrote in his annual letter to shareholders. Scope for change US Treasury Secretary Scott Bessent is pushing for change and has claimed that tweaking Treasuries could drive US borrowing costs down, helping the world's biggest economy to service its mountain of debt. More importantly, it could help support US bonds at a time when foreign investors are increasingly losing faith. Ken Rogoff, the former chief economist at the International Monetary Fund, agrees that there's scope for change. He says: 'It is very hard to give a clear rationale for the SLR, which is essentially an extremely crude way to stop banks from over-leveraging and has led to all kinds of distortions in the market because large global banks can no longer perform simple arbitrage functions as they used to do.' Jerome Powell, the Federal Reserve chief who is currently at war with Trump over interest rates, is singing from the same hymn sheet as the president, describing it as 'prudent' to reconsider the rule given the growth in safe assets on bank balance sheets over the past decade. And so it begins. In June, the Fed proposed rule changes that would move away from a crude approach and instead tie the amount of capital banks must set aside to how important it is to the global financial system. The Fed also left the door open to bigger changes that would completely exclude low-risk assets such as Treasuries and central bank deposits from the leverage ratio calculation – as was the case during the pandemic – and invited feedback on whether this could be done as an 'additional modification'. As it stands, the changes are set to free up an extra $US5.5 trillion ($8.6 trillion) on bank balance sheets that can be put to work. The Fed estimated that capital requirements at the deposit-taking arms of the biggest banks would fall by an average of 27 per cent. However, the move to change the SLR and return to pre-crisis rules has proved highly controversial for those who lived through the last financial meltdown. Sheila Bair, who used to run the Federal Deposit Insurance Corporation (FDIC), which insures savers against losses in the event of a bank failure, warns that such a move is storing up trouble for the future. Loading After all, the collapse of Silicon Valley Bank (SVB) in the US and the firesale of its UK subsidiary to HSBC in 2023 was rooted in the SVB's purchases of US Treasuries. SVB had kept a large portion of depositors' cash in Treasuries, but as interest rates surged in the months leading up to its collapse, the value of these Treasuries plunged. The crisis that followed Liz Truss' mini-budget was also a crisis sparked by turmoil in the gilt market. 'Such a huge reduction will increase the risk of a [major] bank failure, exposing the economy to credit disruptions and exposing the FDIC and banking system to substantial losses,' Bair warns. 'I led the FDIC during the 2008 financial crisis and remember well how insured banks, with their higher capital requirements, ended up being a source of strength for the holding companies, not the other way around. 'The idea that somehow this freed-up capital will ... make its way back down to the insured banks in a crisis isn't grounded in reality.' Bair isn't the only one who's expressed concern. Fed governor Michael Barr, who served as the central bank's top bank regulator before stepping down in the face of pressure from the Trump administration, warned that the central bank's proposals would 'significantly increase' the risk of a big bank failure. Bair's big fear is that the money won't end up being funnelled back into boring bonds at all, but end up lining shareholders' pockets or in more exotic investments. She says: 'Banks will likely find a way to distribute some of it to shareholders, or otherwise deploy it into their market operations which are riskier and more vulnerable to crisis conditions than insured banks.' COVID buffer Those who back removing Treasuries from the calculations highlight that it was done during the pandemic without much fanfare as banks ploughed more money into bonds. However, analysts at Morgan Stanley have highlighted that this was in part a function of a 21 per cent jump in bank deposits as workers had nowhere to spend their cash during lockdowns. Morgan Stanley recently noted: 'The COVID-related surge in deposits means that 2020-21 is not comparable with today's environment, as deposit growth is tepid at 1 per cent year on year. Deposit growth, combined with loan demand, are key drivers of bank demand for securities as banks will prefer to use deposits to support client lending activity and build client relationships.' Loading Bair says capital buffers were put there for a reason. 'If there should be a future crisis, regulators have the authority to provide emergency temporary relief,' she says. '[If they] reduce capital requirements now, they don't know how banks may deploy it. Better to maintain strong requirements in good times so capital cushions will be there when bad times hit.' British regulators are also keeping a close eye on things amid concerns the UK is moving towards a world where sovereign risk is completely removed from the leverage ratio. While the UK has already taken steps to remove central bank reserves from its calculations, officials believe removing government bonds would be a step too far. Rogoff, now a Harvard professor, agrees that capital buffers have served their purpose during times of crisis.
