Australian shares are set for a cautious start as investors await the Reserve Bank of Australia’s interest rate decision, while higher US bond yields and renewed oil-market uncertainty weighed on Wall Street.
ASX futures were up two points at 8,722 early on Tuesday, suggesting a broadly flat opening. The S&P/ASX 200 rose 0.2 per cent on Monday, as gains among banks and defensive sectors including utilities and healthcare offset weakness in mining stocks.
Economists widely expect the RBA to raise its cash rate by a quarter of a percentage point to 4.6 per cent at its policy meeting. The decision is due at 2.30pm in Sydney, followed by a press conference with governor Michele Bullock an hour later.
The move would end a two-meeting pause and take borrowing costs to their highest level since November 2011. Investors will be looking for indications of whether the central bank could raise rates again in November or hold fire for the remainder of the year.
“The risk sits with the need to tighten monetary policy further beyond September given the inflation backdrop,” said Belinda Allen, head of Australia economics at Commonwealth Bank of Australia. “But it is not an easy decision to push monetary policy further into restrictive territory.”
Wall Street hit by rising bond yields
US shares fell as the yield on the 10-year Treasury climbed to 5.23 per cent, from 5.17 per cent late on Friday. The yield has returned to a level last seen in 2007, before the global financial crisis drove borrowing costs sharply lower.
The S&P 500 dropped 0.8 per cent, the Dow Jones Industrial Average lost 0.7 per cent and the Nasdaq Composite fell 0.9 per cent. Investors have been concerned about the US government’s debt burden, while rising energy prices have added to inflationary pressure and the prospect of higher interest rates.
Oil prices remained volatile amid uncertainty over when tankers will be able to pass freely through the Strait of Hormuz. West Texas Intermediate futures settled below 93 US dollars a barrel, up 0.5 per cent, while Brent crude rose 1.3 per cent to 105.71 US dollars.
President Donald Trump said talks with Iran had taken place through mediators, after rejecting an offer from Tehran to reopen the waterway if Washington made concessions. Conflicting signals over a possible ceasefire and the reopening of the strait have added to market uncertainty.
“Without a concrete deal or conclusion to the conflict, the market is quickly fading initial headline reactions and higher prices are becoming harder to shake,” said Ryan McKay, senior commodity strategist at TD Securities.
Airline shares fell as the rise in oil prices threatened to increase fuel costs. American Airlines declined 2.5 per cent and United Airlines lost 2.2 per cent, while gold miners weakened as the price of gold dropped 3.9 per cent.
Nvidia rose 1.7 per cent after approving a plan to return up to a further 150 billion US dollars to shareholders through a share buyback programme. European markets were mixed, while indexes in Seoul and Shanghai fell 2.7 per cent and 1.7 per cent respectively.
