Morning Report
Today's economic developments and market movements.
Click here for the full Morning Report (PDF 276KB)
Key themes: Comments from Jerome Powell expressing his confidence in the US economy extended recent moves in equities and fixed income markets.
US equities hit yet another fresh record high, while treasury yields were lower across the curve. Traders firmed odds for Fed rate cuts in a fortnight’s time and into 2025.
The French Government lost a no-confidence vote, ending Prime Minister Michel Barnier’s 3-month old administration following a dispute over next year’s budget.
The US dollar was little changed, holding familiar ranges. However, the Aussie dollar reset lower after yesterday’s weak national accounts data painted a bleak picture for the economy. The selling continued overnight with the AUD/USD briefly edging below 64 cents for the first time since August.
Share markets: US equities took Jerome Powell’s confidence in the economy in their stride, the S&P 500 up 0.6% to yet another record high. The NASDAQ gained 1.3%, it too claiming a fresh record as did the Dow Jones after a 0.7% gain.
European equities were mixed. The Euro Stoxx 50 and the German Dax rose 0.8% and 1.1%, respectively. The latter taking out another fresh record high. The FTSE 100 slipped 0.3% in London.
The ASX 200 slipped 0.4% yesterday underperforming the broader Asian indices as GDP data surprised to the downside and laid out a bleak picture for the state of the domestic economy.
Interest rates: US yields rallied 4-6 basis points across the curve, extending recent momentum. The 2-year yield remained in a steady downtrend as rate cut expectations continue to firm. The odds of a December Fed cut have lifted to just shy of 75% and there is now almost 90 basis points of cuts priced into the curve by the end of 2025.
Buyers are yet to take US 10-year yields through 4.16% and this level held again overnight even as forward cash expectations were marked lower. The 2-10-year curve was steeper and is now out to about 5.4 basis points.
European yields were well contained despite the collapse of the recently established French Government. 2-and-10-year yields were around 1-3 basis points higher or lower across core Europe.
Aussie bond futures carried yesterday’s momentum overnight, rallying a further 3 and 5 basis points in 3-and-10-year yields, respectively. Futures are now back trading around where they were in mid-October. RBA rate cut expectations were pulled forward into April, with 75 basis points of cuts now priced in by year-end, up from closer to 60 basis points on Tuesday’s close.
Foreign exchange: The US dollar traded a familiar range between 106.09 and 106.72 and is currently little changed on yesterday’s close. US payrolls data on Friday will be the next data point in focus ahead of inflation data next week as Fed commentary leans in favour of slowing the pace of rate cuts as they approach neutral.
The Aussie dollar reset lower after yesterday’s weak national accounts data painted a bleak picture for the economy. The selling continued overnight with the AUD/USD briefly edging below 64 cents to 0.6399 before reversing some of the move to trade around 0.6435 at the time of writing. The weak growth backdrop is unlikely to shift the dial too much on the RBA’s high bar for cutting given it is largerly an extension of the status quo and a disappointment of an expected recovery rather than a deeper leg of weakness. That should keep yield differentials favourable for the Aussie and push against any further selling pressure. That said, further weakness could not be ruled out on a further bout of ‘Trump trades’ and if China policy announcements underwhelm this month. Key over the next few sessions will be whether the Aussie can return to its 0.6435-0.6550 range of the past few weeks.
The euro held steady despite developments in French politics, trading a 1.0473 to 1.0544 range. The Japanese Yen underperformed with the USD/JPY popping to a high of 151.23, retesting the 50 day moving average.
Commodities: Despite the Energy Information Administration (EIA) reporting the largest decline in US crude inventory since August and refined product exports jumping to the second highest on record, crude markets weakened with the focus on the stronger US dollar and global politics.
West Texas Intermediate (WTI) futures are down 1.8% at US$68.69. Expectations appear to be high that OPEC will agree to extend production cuts well into Q1 2025 when they meet online later today. However, markets appear to be more focused on the outlook for a supply glut next year; the EIA warned mid-November of a potential surplus of 1 million barrels per day next year.
Metals were mixed with copper reversing some of the previous day’s gains to be down 0.4% to US$8,987 while aluminium jumped 1.1% to US$2,638.
Iron ore prices held above US$105 as traders look forward to the Central Economic Work Conference in China which will take place on Wednesday and Thursday next week. Iron ore futures are up 0.2% at US$105.50.
Australia: The Australian economy continued to tread water in the September quarter. The economy expanded just 0.3% in the quarter and 0.8% through the year.
The overall picture is soft, with very little momentum on the private side. The public sector remains the primary locus of growth. New public demand continued to expand rapidly and now represents 27½% of total GDP, a new record.
Meanwhile private final demand was essentially unchanged in the quarter. The expected modest recovery in private sector demand did not eventuate. The Australian household sector continues to be squeezed, with disposable income growth remaining surprisingly weak given the tax cuts in the quarter. This may go some way towards explaining the previously reported weak spending response to the tax cuts.
China: The Caixin services purchasing managers’ index (PMI) edged down to 51.5 in November but remained in expansionary territory for a twenty-third consecutive month. After slowing through the September quarter, services activity looks to have picked up modestly through the December quarter in response to recent policy announcements.
Eurozone: The French Government lost a no-confidence vote, ending Prime Minister Michel Barnier’s 3-month old administration following a dispute over next year’s budget. President Emmanual Macron isn’t expected to lose his position. The toppling of the Government is likely to drive a prolonged period of political turbulance.
European Central Bank (ECB) President, Christine Lagarde, said “Our battle against inflation is nearing completion, not completed, not mission accomplished yet” adding that “we still have a bit of work to do, but we are in sight of target and that would predicate that we begin looking forward more than we have in the last couple of years.”
The services PMI was finalised a touch higher in November at 49.5, up from a flash reading of 49.2. This marked the first monthly contraction in services activity since January.
The producer price index (PPI) rose 0.4% in October, as widely expected. This was up from -0.6% in September, leaving annual PPI growth at -3.2%.
United Kingdom: The final services PMI reading for November was nudged a little higher at final figures to 50.8 from 50.0. There has been a significant slide in services activity since August, leaving the sector on the verge of contraction.
United States: Fed Chair Jerome Powell showed confidence in the health of the US economy and said officials can afford to be more cautious as they lower rates towards neutral. Powell noted that they will take fiscal policy into consideration as it is passed.
St Louis Fed President Musalem argued for patience and optionality in easing policy given the health of the economy and risks for inflation.
The ISM services PMI fell in November from 56.0 to 52.1, underwhelming expectations. Employment and new orders both weakened in the month but remained above the threshold of 50 which separates expansion and contraction. The prices paid measure ticked up slightly to 58.2, broadly consistent with readings so far in the back half of 2024.
ADP employment data for November was a hair off consensus coming in at 146k in the month. The October reading was revised down to 184k from 233k previously.
US factory orders edged 0.2% higher in October after September’s decline was revised up from -0.5% to -0.2%. Ex transport, orders rose 0.1% for a second straight month. Core durable goods orders (ex transport and defence) were unrevised in the month at -0.2%.
The Fed’s December Beige Book continued to point to a softer US economy than suggested by economic data. “Economic activity rose slightly in most Districts”, though “expectations for growth rose moderately across most geographies and sectors”. “Employment levels were flat or up only slightly across Districts”, but the “level of layoffs was also reportedly low”. “Wage growth softened to a modest pace across most Districts, as did expectations for wage growth in coming months”. On inflation, “Prices rose only at a modest pace... [and] Both consumer-oriented and business-oriented contacts reported greater difficulty passing costs on to customers”. “Input prices were said to be rising faster than selling prices for most businesses, resulting in declining profit margins”.
World: The global economy faces proliferating risks ranging from trade tensions to wars and debt troubles that could threaten its “remarkable resilience” of past years, the OECD said in its latest economic outlook publication.
The OECD expects global growth to remain broadly stable over the next two years as inflation settles sustainably within central bank targets. But it highlighted that risks to the outlook remain elevated, citing trade tensions, geopolitical instability and rising debt burdens as key risks.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Morning Report
Morning Report
Morning Report
Browse topics
Disclaimer
©2025 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.