Morning Report
Today's economic developments and market movements.
Key themes: US inflation data came in as expected in November. Traders upped bets for a Fed rate cut this week as the data is unlikely to shift the Fed’s assessment that current levels of restrictiveness are no longer appropriate.
However, signs of stalling disinflation progress will call into question the pace of easing in 2025.
US equities resumed their rally after a pause through the start of the week. Treasury yields were modestly higher across the curve in a broad bear-steepening move.
The US dollar was firmer, hitting a 2-week high but broadly holding recent ranges. The Aussie dollar sank to a fresh 2024 low, exploring levels not seen since November 2023.
Share markets: US equities resumed their rally after a brief intermission over the start of the week. The S&P 500 is up 0.9% and back around Friday’s level, while the NASDAQ is 1.8% higher, scaling a fresh record high.
The ASX 200 slipped 0.5% yesterday but futures are higher on the back of US markets overnight and look to have largerly reversed yesterday’s fall. The equity markets’ sharp response to bullish commentary from China’s Politburo has since fizzled out with the Hang Seng and the CSI 300 trading back around last week’s levels after another slide in yesterday’s trade.
Interest rates: Markets pushed the implied odds of a Fed rate cut next week up to around 97% following US inflation data which met expectations. However, signs of stalling inflation progress will raise further questions about the likely pace of easing through 2025.
Bond markets look to have focused on this point, with yields modestly higher across the curve in a broad bear steepening move. The 2-year yield is up 1 basis point to 4.16%, while the 10-year yield is 4 basis points higher at 4.27%.
Aussie bond futures sold off just one basis point in both the 3-and-10-year tenors to 3.74% and 4.21%, respectively. Markets are attaching around a 68% chance to an RBA rate cut in February with two cuts fully priced in by May.
Foreign exchange: The US dollar was firmer against most majors, with the DXY testing a 2-week high of 106.80 before pulling back slightly to trade around 106.69 at the time of writing. Risks around next week’s fed meeting are becoming a little more one-sided as market pricing has moved more decisively towards a cut. However, the focus will be on the likely pace of cuts in 2025 rather than the decision itself, unless it surprises of course. Here, markets have already gone a long way towards pricing a slower cadence of cuts through 2025 with just over 60 basis points of easing priced in over the year.
The Aussie dollar slumped to a fresh 2024 low, testing levels last seen in November 2023 around 0.6337. However, the dive lower was only brief with the AUD/USD now trading back up around 0.6372. That said, the case for material upside for the Aussie looks weak and it’s likely to remain under pressure over the coming days, particularly if news from China’s Central Economic Work Conference (CEWC) underwhelms.
After testing the top of it’s recent range late last week the euro has been back under pressure through the start of this week and is now back below 1.05 after dropping to a low of 1.0480 overnight. This is consistent with what is an increasingly challenging backdrop for the euro. The European Central Bank (ECB) is poised to ease policy faster than many peers in response to soggy economic activity, while political instability and a broad fiscal consolidation agenda add to the bear case.
The Yen continued to sell off against the greenback with the USD/JPY rising from a low of 151.02 to a 2-week high of 152.82. Traders have all but abandoned expectations for a rate hike from the Bank of Japan (BoJ) next week and a hike is now not fully priced until May next year. This was helped along by reports that BoJ officials see a small cost to waiting before raising rates.
Commodities: Crude markets firmed as OPEC made its deepest cut to the 2024 crude demand outlook, slashing projections for demand growth this year and next for a fifth month. It chopped forecasts by 210,000 barrels a day to 1.6 million parrels per day lowering guidance by 27% since July. Meanwhile, US crude inventories fell by a more-than-expected last week with inventories down 1.43 million barrels last week according to Energy Information Administration data. West Texas Intermediate (WTI) futures are up 2.5% to US$70.33 per barrel.
Iron ore continued to by time around US$105 after fully unwinding the initial response to comments earlier in the week from China’s Politburo which appeared supportive of more forceful fiscal policy support.
Australia: RBA Deputy Governor, Andrew Hauser, spoke last night on the likely impacts to the Australian economy from a US-China trade war. Given details on Trump tariff’s remain light, and the subsequent retaliation from impacted countries is unknown there are a wide array of possible scenarios which could be positive, negative or ambiguous for growth and inflation in Australia. In the circumstances, Hauser underscroed that “it is important that we don’t prejudge the implications of tariffs for policy but monitor developments closely and stand ready to respond appropriately as the facts emerge”.
While Hauser’s prepared remarks did not traverse questions of monetary policy, it was unsurprisingly a hot topic during the subsequent Q&A. The responses were largerly played with a straight bat, however, a particularly pointed question about the RBA’s change in guidance and the accompanying market reaction did elicit some additional colour.
Hauser remarked that it’s likely the RBA would have altered it’s guidance in the same fashion even if there had been no data during the intermeeting period, despite adding that weak National Accounts did obviously support the change. Interestingly, there was also what appeared to be an endorsement of revised market pricing, though it was unclear whether this was just a confirmation that the market response didn’t surprise the RBA.
United States: The consumer price index (CPI) met expectations in November. Headline and core prices both gained 0.3% in the month for respective annual rates of 2.7% and 3.3%, little changed from October.
Core goods prices tick up 0.3% after a lengthy period of disinflation/deflation. However, this result looks to largely be attributable to strong growth in used car and truck prices as vehicles are replaced following recent severe weather events. Shelter inflation ticked down in November to 0.3%, and transportation costs were flat. Medical services inflation remains elevated given persistent growth in input costs for the sector.
While the data reiterates that significant policy restrictiveness is no longer needed, supporting a rate cut next week, signs of stalling disinflation progress will be gleanded at closely to assess just how quickly the Fed can ease policy settings through 2025.
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.