Markets Daily
Equity sentiment improved further amid speculation the Fed will slow its tightening cycle, but steep falls in China and Hong Kong equities after the CCP Congress seemed to weigh on AUD/USD, slipping to 0.6310. Today’s calendar features Australia’s federal budget and US October consumer confidence.
Yesterday
The week started with a bounce in the British pound as Boris Johnson ended his attempt to return as UK prime minister, leaving the more market-friendly Rishi Sunak as the frontrunner. Despite the downward pressure on US yields, USD/JPY resumed its upward march, probing to around 149.70 before a sudden slide to as low as 145.28. Japanese officials declined to confirm intervention but did pledge firm action to battle speculators. By late Sydney trade, USD/JPY was back to just under 149.00. AUD/USD squeezed as high as 0.6411 (high since 7 October) but then faded to 0.6325/30. Cooling the mood was the steep decline in China and Hong Kong equities in the wake of the Communist Party Congress, which didn’t appear to offer hope of a return to business-friendly policies (the ASX 200 however managed a 1.5% gain). With about 2 minutes’ warning, we saw China’s Q3 GDP data, somewhat better than consensus, at 3.9%yr. Industrial production growth picked up to 6.3%yr but retail sales slipped to just 2.5%yr, presumably increasingly hampered by Covid restrictions.
Currencies/Macro
The US dollar was mixed against G10 currencies on the day, Aussie and Kiwi weakest. EUR/USD ranged between 0.9807 and 0.9899. GBP/USD finished a touch lower on the day, around 1.1280. USD/JPY traded either side of 149.00, including a sudden slide to 148.30 which obviously generated further discussion of BoJ intervention tactics. AUD/USD a little over 1% to 0.6310. NZD/USD fell 55 pips net, -1.0%, to 0.5695, leaving AUD/NZD down 30 pips net, at 1.1090.
US PMIs (S&P) in October were weaker than expected. Manufacturing fell from 52.0 to 49.9 (est. 51.0) – the lowest since June 2020, services from 49.3 to 46.6 (est. 49.5), and the composite from 49.5 to 47.3 (est. 49.2).
Eurozone flash October PMIs also weakened further, and remained in contractionary territory. Manufacturing fell from 48.4 to 46.6 (est. 47.9), services from 48.8 to 48.2 (est. 48.2), and the composite from 48.1 to 47.1 (est. 47.6). The UK PMIs printed on the weak side of expectations, manufacturing sliding to 45.8 from 48.4 in September, services down to 47.5 from 50.0.
Interest rates
US bond yields rose on Monday, as risk sentiment improved and markets retraced some of the bearish price action following the WSJ article. 2yr government bond yields rose from 4.40% to 4.52%, and 10yr government bond yields rose from 4.12% to 4.29%.
Australian bonds took trends from global price action, but outperformed their US counterparts. Today’s Federal Budget should provide markets with a better idea of how the economy will look like under the new government, and what the revised borrowing program looks like. 3yr government bond yields (futures) rose from 3.62% to 3.74%, and 10yr government bond yields (futures) rose from 4.13% to 4.23%. Markets are fully priced for a 25bp hike at the next RBA meeting. The AU-US 10yr bond spread narrowed on the back of AU outperformance, currently at -7bps.
Credit spreads were mixed with Main closing 3.5bp tighter at 121.5 while CDX saw a smaller move (50bp tighter at 93.5) but is now at the lows for the current series. Europe saw a strong open on the primary front with 7 issuers pricing EUR8.9bn across a mix of fins and corps including Verizon’s EUR2.5bn 2 part deal (8/12yr) and BNS extended its recent run of funding with a EUR2bn 2yr covered at MS+12. The US was more subdued with 3 issuers pricing USD4.5bn including Dow (USD1.5bn total, NIC 10/20bp) and Marsh & McLennan (USD1bn total NIC flat) which each print 10yr & 30yr tranches while Fifth Third completed deals from both its op co (USD1bn, NIC25bp) and hold co (USD1bn, NIC 15bp), however reports were that other issuers stood down they look as current rates positioning ahead of the Fed next week.
Commodities
Crude markets edged lower as concerns about global recession and weak Chinese data weighed on sentiment. The December Brent contract is down a modest 34c at $84.71 while the December Brent contract is last down 17c at $93.33. China increased crude imports in September, with inbound shipments at 9.83mbpd, the highest since May. China’s diesel exports jumped to the highest in 15 months as refiners utilised higher quotas and benefited from strong global prices.
Warm weather in Europe saw natural gas prices plunge again, with some suggesting we may be looking at a potential collapse in prices given the current glut of LNG carriers waiting at ports. The November TTF contract fell another 12.7% to hit the lowest level back to June. Prices have halved so far this month, helping January baseline European electricity drop to August lows.
Metals were mixed despite the sharp selloff in Chinese stocks and disappointing economic data. Copper is last at $7,572, down 0.7% and aluminium is down 1.3% at $2,177. However, zinc rose 1.6% to $2.974 while nickel is up 1.8% at $22,350. With LME member feedback due by Thursday this week, European industry bodies warned that any moves to ban Russian aluminium could put thousands of companies in Europe out of business. The group including the Federation of Aluminium Consumers in Europe “requested the urgent intervention of the European Commission and of EU member states against threats of bans, high tariffs or sanctions on Russian aluminium which represent an imminent and vital threat to the European aluminium industry”. Meanwhile Trafigura warned of a copper deficit in the region of 350-380kt in 2022 with rising demand for copper in areas including infrastructure and electric vehicles adding to consumption. Copper in Chinese bonded warehouses dropped to the lowest in more than a decade. Chinese imports of copper ore and concentrate jumped 8.8%yy to 496kt in September.
Finally note that iron ore markets softened again in response to the slump in Chinese equities. The November SGX contract is down 75c from the same time yesterday at $90.75 while the 62% Mysteel index fell 70c to $91.40. China imported 99.71mt of iron ore in September, up 4.3%yy and 2%3myy. Chinese steel production jumped 18%yy in September to be up 3.5%3myy. Year to date steel production is up 5.8% versus the 5yr average.
Day ahead
Australia’s recently elected government will release another budget update, around 7:30pm Syd, refreshing the fiscal projections. For 2021/22, the budget deficit came in at $31.9n (1.4% of GDP), some $47.9bn below that in the Pre–election Economic and Fiscal Outlook (PEFO). Revenue surprised to the high side by $27.6bn and expenses were $20.3bn lower than forecast (partly due to delays). For 2022/23, we anticipate that the October Budget will forecast a widening of the deficit to $45bn, 1.9% of GDP impacted by upward pressure on expenses. That would still be $32.9bn below PEFO. From 2023/24, the budget deficit profile is likely to deteriorate – increasing each year and being above that in PEFO. This reflects the crimping of revenue from the emerging economic slowdown and upward pressure on expenses (from higher inflation, rising interest rates and escalating program cost).
The October IFO Germany business climate survey will continue to reflect a highly uncertain economic outlook (market f/c: 83.5, with current assessment 92.5, expectations 75.0).
US: The FHFA and S&P/Case-Shiller home price indexes should show a deepening correction in August as prices continue to decline amid aggressive financial tightening (market f/c: -0.6% and -0.7% respectively). Meanwhile, the Conference Board’s consumer confidence index and the Richmond Fed index are both expected to soften from already-fragile levels in October (market f/c: 105.3 and -5 respectively).
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.