Morning Report
Today's economic developments and market movements.
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Key themes: Inflation came in as expected in the US in October. There are no signs of a reacceleration in inflation, but eqully, the pace of disinflation has not picked up.
The sell-off in longer-dated US treasuries and the surging US dollar continued after taking a brief pause immediately after the in-line inflation report.
The US dollar reached a 12-month high pushing most majors through key psychological levels.
US equities are up modestly, resuming their move higher but are still yet to re-test record highs from earlier in the week.
Share markets: US equities are modestly higher this morning. The S&P 500 and the Dow Jones are up around 0.2%, while the NASDAQ is flat.
European markets were mixed. The Euro Stoxx 50 slipped 0.1%, the German Dax was down 0.2% while the FTSE 100 was up 0.1% in London.
The ASX 200 slipped 0.8% yesterday in a broad sell-off across Asian markets. Futures are up a touch this morning.
Interest rates: The as-expected inflation report bolstered expectations for rate cuts and allayed concerns a hotter-than-expected number could derail the path of Fed cuts. The 2-year yield is currently down 6 basis points at 4.28% after briefly touching a fresh 3-month high ahead of the inflation read. The longer end of the curve continued to underperform the 10-year yield is currently up 1 basis point at 4.44% while the 30-year yield is 5 basis points higher at 4.62%, both around 3-month highs.
The implied odds of a December Fed rate cut is up to around 67% from below 50% a day prior. There’s around 75 basis points of cuts priced in by the end of 2025.
Aussie bond futures were a little higher overnight with the 3-year yield off 3 basis points at 4.19% and the 10-year yield down 1 basis points at 4.68%. Swaps markets are not fully pricing in an RBA rate cut until August 2025.
Foreign exchange: The US dollar remained well bid, surging to a fresh 12-month high and pushing most majors through key psychological levels. The DXY traded from a low of 105.72 to a high of 1.06.54 and is currently trading around 106.39.
The Aussie dollar broke through 65 cents hitting a low of 0.6480, the euro plunged below 106 to a low of 105.72 but is now trading back above the key level and the British Pound pierced through 1.27 on its way to a low of 1.2687. The Japanese Yen took out 155 in Asian trade yesterday and has sold off even; the USD/JPY reaching a high of 155.62.
Commodities: Crude markets were a little firmer and look to be forming a tentative base. West Texas Intermediate (WTI) futures are up 0.2% at US$68.32. It was reported that Iran has made plans to keep oil production and exports stable.
Metals continued to sell-off. Copper and Nickel futures are both down 1.1% at US$8,917 and US$15,730, respectively.
Iron ore is holding above US$100 but price action remains soggy and underlying fundamentals continue to point to lower prices.
Australia: The Wage Price Index (WPI) rose 0.8% in the September quarter to be 3.5% higher over he year. This was a touch below the RBA’s expectation of a 0.9% rise. Annual wage inflation peaked at 4.3% in December 2023 and has been drifting lower through 2024. Private sector wages rose 0.8% in the quarter and this was matched by the public sector.
Overall, the wages data confirm that the resilience in the labour market is not posing a significant upside risk to inflation via excessive wage pressures.
New Zealand: There was a net migration inflow of 2.3k people in September, up from 1.8k people in September. This is still around the lowest pace of migration since 2021 and below pre-pandemic rates.
United States: The consumer price index (CPI) rose 0.2% in October and was 0.3% higher in core terms (excluding food and energy). In annual terms headline inflation ticked up to 2.6% while core inflation remained unchanged at 3.3%. Both core and headline readings were on par with expectations and little changed on recent inflation momentum. Inflation isn’t picking back up but it’s also not cooling any faster.
The Minneapolis Fed Chief, Neel Kashkari, said he’s confident inflation is headed down toward the central bank’s 2% target, speaking just after the CPI release. Alberto Musalem, head of the Fed’s St.Louis branch expects gradual rate cuts, while Lorie Logan (Dallas Fed President) and Jeff Schmid (Kansas City Fed President) both sounded a note of caution.
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