The Australian sharemarket is bracing for a soft start to the week, with futures pointing to a fall of around 57 points, or 0.7 per cent, at Monday's open — even as Wall Street managed to eke out a marginal gain on Friday to cap a bruising week shaped by a US Federal Reserve rate hike, a milestone surge in bond yields, and persistently elevated oil prices.
The S&P 500 closed Friday's session up just 0.2 per cent, supported by a rally in semiconductor stocks that also lifted the tech-heavy Nasdaq by 0.4 per cent. The blue-chip Dow Jones Industrial Average, however, slipped 0.2 per cent. Despite Friday's thin gain, the S&P 500 still posted its second consecutive weekly loss.
Wall Street Exhausted After a Volatile Week
It was a week that left investors spent. The US Federal Reserve raised interest rates during the week, and the yield on the benchmark 10-year US Treasury bond climbed to 5 per cent — a level not seen since 2023 — rising from 4.94 per cent the previous session. Higher bond yields make borrowing more expensive across the board, weighing on everything from mortgage costs to corporate investment in areas like AI infrastructure, and they tend to erode the value of equities.
With so much uncertainty in the air, many market participants chose caution over conviction heading into the weekend. The mood on the floor was one of collective exhaustion rather than strategic conviction, with investors reluctant to take on directional risk given the potential for unexpected developments over the weekend to trigger volatile trading at Monday's open.
Market watchers noted that investors were grappling not just with the immediate impact of the Fed's latest move, but with the broader question of where monetary policy is heading — and what that means for both equities and fixed-income portfolios over the longer term. The shortening of odds for another rate hike in October only added to the uncertainty.
Oil Prices and Inflation Keep Markets on Edge
Crude oil remained a central concern for global markets throughout the week. Brent crude, the international benchmark, surged as high as nearly $US110 per barrel earlier in the week — up sharply from around $US70 in July — driven in part by the war with Iran. By Friday, it had pulled back slightly, briefly dipping below $US102 before settling at $US103.87, down 0.9 per cent on the day. Reports indicate China, at Saudi Arabia's request, asked Iran to limit Houthi rebel attacks on Saudi oil infrastructure, which helped ease prices from their session peaks.
The sustained high oil prices are flowing through to consumers and businesses. US petrol prices have climbed to $US4.47 per gallon, up from $US3.20 a year ago. Diesel has hit a record $US6.45 per gallon, directly inflating shipping and logistics costs — and by extension, the price of everyday goods from groceries to clothing.
Broader inflation remains stubbornly above 3 per cent by several measures in the United States, keeping pressure on the Fed and rattling bond markets. For Australian investors tracking the ongoing impact of surging oil prices on global sharemarkets, these dynamics are becoming an increasingly familiar headwind.
European Markets Take a Heavy Hit
While Wall Street managed to hold its ground, European sharemarkets had a far rougher Friday session. Germany's DAX dropped 1.6 per cent, London's FTSE 100 fell 1.5 per cent, Paris's CAC 40 shed 1.5 per cent, and the broad Eurostoxx 600 closed 1.2 per cent lower. The weakness across the continent reflected many of the same concerns — elevated borrowing costs, energy price pressures, and slowing growth momentum — that have shadowed global markets throughout the week.
A Busy Week Ahead for Australian Markets
Despite the global turbulence, Australia has a relatively contained economic calendar this week — though there are several events worth watching closely.
The standout release will be the August Labour Force Survey, due on Thursday, which will provide the clearest read yet on where the local jobs market is heading. Economists at Commonwealth Bank expect employment to have grown by around 15,000 during the month. With the participation rate expected to remain steady at 66.9 per cent, CBA's team forecasts the unemployment rate will hold at 4.5 per cent. While the jobs market has cooled from its peaks, it has broadly held up.
Reserve Bank Governor Michelle Bullock is scheduled to speak on Tuesday, with Assistant Governor (Economic) Sarah Hunter also taking part in a podcast appearance the same day — both events likely to be closely watched for any signals on the RBA's thinking around the path of interest rates. Wednesday will bring August manufacturing and services PMI data for both the US and China, and a scheduled meeting between Presidents Trump and Xi in Washington could also influence sentiment in Asian markets.
With only a limited technology sector exposure, the ASX is less able than Wall Street to benefit from semiconductor-driven rallies — meaning the local bourse remains particularly vulnerable to the bond market and commodity price pressures currently driving global volatility. The Australian dollar was trading at US71.11 cents as markets headed into the new week.
