Markets Daily
A soft US manufacturing survey and UK partial backflip on tax cuts weighed on bond yields and boosted equities. The US dollar was mostly softer, AUD/USD recovering to 0.6510. Today’s calendar features the RBA rates decision plus Australia August housing finance and building approvals data.
Yesterday
Regional sentiment was mixed, with turnover thinned by the first business day of China’s week-long holidays. The ASX 200 slipped -0.3%, trading despite the Sydney holiday. AUD/USD recovered some of Friday’s decline, edging up from just above 0.6400 to 0.6450.
Currencies/Macro
The US dollar fell against most G10 FX on the day. EUR/USD is net up 20 pips at 0.9825. The UK government dropped one of its planned tax cuts, helping GBP/USD rally 1.5 cents to 1.1320. USD/JPY fell from 145.00 to 144.16 before recovering to 144.60, barely changed net. AUD/USD is up 1.8% or 1.1 cents on the day at 0.6510/15. Outperformer NZD rose 1.2 cents or 2.2% to 0.5720. AUD/NZD fell half a cent to 1.1390.
US ISM manufacturing activity in September fell to 50.9 (est. 52.1, prior 52.8) - the lowest since May 2020. Among major components, new orders fell to 47.1 (est. 50.5, prior 51.3) employment fell to 48.7 (est. 53.0, prior 54.2), prices paid fell to 51.7 (the sixth consecutive monthly fall, prior 52.5), and new export orders fell to 47.8 (prior 49.4).
New York Fed president Williams said: “Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done…it will take time, but I am fully confident we will return to a sustained period of price stability.”
Eurozone manufacturing PMI for September was finalised slightly lower at 48.4 from the flash reading of 48.5, citing an uncomfortable combination of slumping demand and intensifying inflationary pressures. Germany’s PMI was finalised at 47.8 from the flash reading of 48.3.
UK manufacturing PMI for September was finalised slightly lower at 48.4 (flash reading 48.5), the narrative indicating concern over the fall in the GBP and UK government actions.
Interest rates
US bond yields fell following weaker than expected US manufacturing data before recovering some of the falls later on in the session. 2yr government bond yields fell from 4.20% to 4.03% before finishing at 4.10%, and 10yr government bond yields fell from 3.80% to 3.56% before settling at 3.82%.
Australian bond yields traced US price action overnight, as domestic markets look to today’s RBA board meeting, where the expectation is a 50bp hike in the cash rate. 3yr government bond yields (futures) fell from 3.67% to 3.46%, settling at 3.56%, and 10yr government bond yields (futures) fell from 3.95% to 3.70%, finishing at 3.82%. Markets are 100% priced for a 50bp hike at the October meeting next week. The AU-US 10yr bond spread narrowed once again on the back of AU outperformance, currently at 18bps.
Credit indices benefited from the improvement in sentiment, with Main tightening to 133 (-2) and CDX to 105 (-4), though cash was mixed and primary issuance remains muted. There were no transactions in Europe, with Germany closed for a public holiday, while three IG issuers priced a total of USD2.25b in the US.
Commodities
Crude saw its biggest daily jump since July on Friday, helped by various press reports suggesting that OPEC+ will cut by more than 1mbpd at its ministerial meeting Wednesday. The November WTI contract is up $3.91 as we write while the December Brent contract is up $3.68 to $88.82. Both Russia and Saudi Arabia are believed to be supportive of a large cut in output with the kingdom keen to lower production so that it can conserve capacity if Russian output falls when western sanctions start to bite in December. Adding weight to the importance of this meeting, it will be held in person in Vienna, the first such meeting since early in the pandemic. There will also be a press conference held after the meeting concludes. Over the weekend, ‘people close to the talks’ suggested that the group was set to cut by between 500k and 1mn with Saudi Arabia making a further unilateral cut in addition. Russia’s Deputy Prime Minister will attend the meeting. The US has sanctioned him though the EU has not. The Austrian government declined to comment on his visit.
Meanwhile thermal energy markets slumped on an influx of LNG into Europe and expectations that demand will fall. The November UK NBP contract fell 16% Monday to hit a 3-month low while the European equivalent fell 10%. The IEA forecast EU demand for natural gas will fall by 10% this year. The EU is negotiating, though still divided over a gas price cap to be presented at a meeting in Prague on Friday. 15 member countries are said to be in support of a cap while a smaller group headed by Germany is opposed to the cap. Germany faced a backlash from other member states after last week unleashing a €200bn plan to support households and businesses weather the impact of higher energy prices.
Metals were mixed with copper down 0.75%, last at $7,503 but aluminium up 3% at $2,227. Zinc fell 2% to $2,909 while nickel rose 1.1% to $21,345. News last week that the LME had written an internal paper charged “with the aim of eliciting market views as to the ongoing acceptability of Russian metal in the broader physical market” was a key factor helping aluminium outperform other metals. Copper was weighed down by the slide in US and global PMIs.
Finally note that iron ore saw a renewed slide late last week as China moved into the Golden Week holidays with domestic markets closed until October 10. The November SGX contract is last at $92.40, at an almost 1 year low while the 62% Mysteel index fell $1.7 to $93.70. A directive from the CBRC allowing nearly 24 cities to lower mortgage rates for the purchase of primary residences late last week failed to impress the market.
Day ahead
At 2:30pm Syd, we anticipate that the RBA will lift the cash rate by 50bps – the fifth consecutive move of 50bps. That will take the cash rate to 2.85%, a touch on the high side of “neutral”. Moves beyond this point are likely to be more measured. Globally and domestically, the inflation outlook is challenging, with risks that inflation expectations ratchet higher. In Australia, headline inflation is expected to climb to over 7% by year end, the labour market is the tightest in 50 years, and wages growth is accelerating, albeit from modest levels. It is in this environment that the RBA is removing ultra-easy monetary conditions and will shift to a contractionary stance. Westpac anticipates that the cash rate will peak at 3.60% in February 2023 – with further moves of 25bps at each of the three meeting from November to February.
At 11:30am Syd, in line with the broader correction, housing finance activity should also continue to track lower in August (Westpac f/c: -2.5%), with owner-occupier loans set to outpace investor loans given the outsized fall for the latter in July (Westpac f/c: -3.5% and -1.5% respectively). Meanwhile, volatility in high-rise approvals may see dwelling approvals bounce in August, though detached houses should see a clearer fall (Westpac f/c: 2.0%). ANZ job ads should remain at a high level.
China markets remain closed today, not reopening until Monday 10 October. Hong Kong is also closed.
US: Factory orders and durable goods orders are indicating that the drag on capital investment is extending well into Q3 (market f/c: 0.2% and -0.2% respectively). JOLTS job openings are off their peak but should remain at a strong level (market f/c: 11075k). The FOMC’s Logan, Williams, Mester, Jefferson and Daly are all due to speak at different events.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
Aussie bulls press the advantage
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.