Markets Daily
Equity sentiment soured slightly following some strong US retail sales data and hawkish Fedspeak. AUD/USD returned to 0.6740. Today’s calendar features Australia October employment, the UK fiscal statement, US October housing data and plenty more from the Fed.
Yesterday
The wages price index rose 1.0% in Q3, slightly above the market median of 0.9%. The increase boosted the annual pace to 3.1% from 2.6%yr, the fastest pace since March 2013 (3.1%) and well up from the COVID low of 1.4%yr. Private sector wages jumped 1.2%, public sector only 0.6%. By industry, retail trade rose the fastest, boosted by the minimum wage increase, while education and training was weakest, just 2.2%yr. The early focus was the rockets that landed just over Poland’s border with Ukraine, which prompted calls for an urgent NATO meeting. Later President Biden, in Bali for the G20 meeting, said that the initial assessment was that the rockets were not fired from Russia, which calmed nerves somewhat. Regional equities were still mostly negative despite Wall Street’s gains, including the ASX 200, -0.3%. AUD/USD traded a narrow 0.6730 to 0.6772 range, overall up a fraction at 0.6765.
Currencies/Macro
The US dollar was mixed against major currencies on the day. EUR/USD rose 0.4% to 1.0395. GBP/USD also rose 0.4%, to 1.1915. USD/JPY was net flat at 139.30 despite the fall in 10 year US Treasury yields to 6-week lows. AUD/USD was little changed at 0.6740, having been rebuffed ahead of 0.6800. Similarly, NZD was capped on a probe towards 0.6200, returning to 0.6150. AUD/NZD slipped 20 pips to 1.0960.
US retail sales in October rose 1.3% (est. 1.0%), with the core control group rising 0.7% (est. 0.3%, prior revised from 0.4% to 0.6%), reflecting both higher prices and consumer demand. Industrial production fell -0.1% in October (est. +0.1%, prior revised from +0.4% to +0.1%), with weakness concentrated in the mining and utilities sectors. November NAHB homebuilder confidence fell to 33 (est. 36, prior 38) – lowest since May 2020.
New York Fed president (and FOMC vice chair) Williams said the Fed should remain focused on its economic goals and avoid incorporating financial stability risks into its deliberations (alluding to heightened market volatility): “using monetary policy to mitigate financial stability vulnerabilities can lead to unfavourable outcomes for the economy…monetary policy should not try to be a jack of all trades and a master of none.” San Francisco Fed president Daly said a pause in the tightening cycle is not on the discussion table, and that a 4.75%-5.25% Fed rate would be reasonable.
UK CPI inflation in October rose 2.0%m/m and 11.1%y/y (est. 1.8% and 10.7%, prior 0.5% and 10.1%), the highest annual rate since 1981. The core measure remained at 6.5%y/y (est. 6.4%). Energy and food prices were at the fore.
Interest rates
The US bond curve bull flattened following the strong retail sales data outcome. The 2-10yr bond curve reached its greatest inversion since 1981, at -66bps. 2yr government bond yields traded a range between 4.34% and 4.40%, finishing at 4.36%, and 10yr government bond yields fell from 3.75% to 3.61%. Markets currently price the Fed funds rate to be 53bp higher at the next meeting in December, peaking at 4.93% in March 2023.
Australian bond yields took its trend from US price action overnight. The November RBA minutes showed that the discussion is still around “pause or 25bp” for the central bank’s policy action, rather than a chance of 50bp hikes. 3yr government bond yields (futures) fell from 3.31% to 3.20%, and 10yr government bond yields (futures) fell from 3.75% to 3.61%. Markets are pricing an 80% chance of a 25bp hike at the RBA meeting next month. The AU-US 10yr bond spread narrowed, following the AU outperformance overnight, the spread currently at -9bps.
Credit spreads were mixed last night as Europe opened to a cautious geopolitical stance which saw Main 3bp wider 96, but cash spreads firm, while the US was little changed in either cash or synthetic (CDX half a bp wider at 83.5). Euro primary volumes were also slower with just 4 issuers pricing in local currency including a EUR750M long 4yr from Mercedes-Benz (MS+35), while the US saw 6 issuers price USD6bn with NAB’s USD3bn the largest on the day, completing USD1.35bn 2yr senior at T+80 and USD1.65bn 5yr covered at SOFR+105.
Commodities
Crude reversed Tuesday’s gains as the Druzhba pipeline restarted and Jens Stoltenberg told a press conference there was “no indication” that the missile attack that killed two people in Poland was a “deliberate attack”. As we write, the December WTI contract is down $1.25 at $85.67 while the January Brent contract is down 93c at $92.93. EIA inventory data showed a hefty 5.4mb draw on crude coupled with a 2.2mb rise in gasoline and 1.1mb rise in distillate. US crude production was unchanged at 12.1mb while imports fell 894kbpd and exports rose 341kbpd. President Biden is considering requiring oil companies to store more fuel inside the US according to Energy Secretary Jennifer Granholm. Legislation to expand the government’s 1 million-barrel Northeast Home Heating Oil Reserve is already pending on Capitol Hill. Meanwhile gas prices eased in Europe after panic subsided over the missile incident in Poland. The December Dutch TTF contract fell 8.2% as stockpiles continued rising and a Bloomberg measure of LNG in storage at sea rose to fresh record highs on data back to 2017. Temperatures are forecast to drop below seasonal norms across Europe over the next week.
Metals prices fell as nickel gave back recent gains. Nickel is last down 11% at $26,910 while copper is down 1.4% at $8,262 and aluminium down 1.2% at $2,405. The LME said it was increasing surveillance of the nickel markets after the last few days of extreme price swings. Nickel has risen 26% over the previous 5 sessions, hitting a 7-month high. The initial margin for nickel will be raised to $6,100 per ton, a 28% increase on current levels. Indonesia’s Investment Minister Bahlil Lahadalia is proposing an OPEC like organisation so that “all nickel producing countries can benefit from the creation of additional value of the commodity equally”.
Finally note that iron ore markets saw further mixed gains with the December SGX contract approaching $100 though closing down 70c at $95.40 while the 62% Mysteel index rose $2.55 to $97.85. The Securities Times said that Chinese banks are likely to cut prime loan rates further this year after Chinese authorities released a 16-point plan to rescue the construction industry. Citi described the plan as a game changer. A senior adviser to the military government in Guinea warned both Rio Tinto and the Winning Consortium Simandou to move faster on the massive project saying that “time for procrastination is over, the development of Simandou is a categorical imperative”.
Day ahead
At 11:30am Syd we see Australia’s October labour force survey. A small improvement in employment growth is anticipated in October, coming off a very weak base over the last few months (Westpac f/c: 15k, in line with consensus). With participation set to hold flat, Westpac expects the unemployment rate to round up from 3.5% to 3.6% (consensus 3.5%), though risks are to the downside for employment, and hence to the upside for unemployment.
UK Chancellor Hunt will deliver the autumn fiscal statement, expected to reveal large tax rises and spending cuts, reportedly totalling GBP55bn, the most contractionary budget in more than a decade.
Eurozone: The final estimate to October’s CPI will give more colour around the expanding breadth of inflation (market f/c: 10.7%yr).
US: Weakness in demand and ongoing input supply constraints should continue to weigh on housing starts and building permits in October (market f/c: -2.0% and -3.2% respectively). The November Philadephia Fed and Kansas City Fed indexes are expected to continue reflecting weak conditions in November (market f/c: -6 and -8 respectively). Initial jobless claims are also likely to remain at relatively low levels for now (market f/c: 228k). The Fed’s Bullard, Bowman, Mester, Jefferson, and Kashkari 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.