Markets Daily
A softer US ISM services survey weighed on US yields and the US dollar, AUD returning to 0.6615. Today’s focus is what seems to be a finely balanced RBA rates decision. We will also see Australia Q1 balance of payments and public demand data ahead of GDP tomorrow.
Yesterday
Australia business inventory levels increased 1.2% in Q1 and will add 0.3ppts to GDP growth (due Wednesday), which is a fraction greater than anticipated. Wage incomes (that is the wages bill ~ employment times wages) in nominal terms posted a robust 1.8% increase, a period for which the Labour Force survey reported a 0.5% rise in employment numbers but a decline in hours worked of 0.2%. Australia Q1 mining profits declined by -2.2% (suggesting a fall in the export prices of resources) while non-mining profits ex finance posted a 3.1% rise, for a headline 0.5% gain. The US dollar was generally on a firmer footing, AUD/USD edging back below 0.6600. Most regional bourses rallied in line with Wall Street on Friday, including the ASX 200 +1.0%.
Currencies/Macro
The US dollar was little changed net against most of the G10. EUR/USD bounced from 1.0680 to 1.0720 on the US ISM report, eventually flat on the day at 1.0710. GBP/USD trimmed its losses to 20 pips at 1.2435. USD/JPY dropped from just above 140.00 pre-ISM to 139.25, then steadied at 139.55, net -0.25%. AUD/USD dipped as low as 0.6579 then recovered to 0.6615, up fractionally on the day. NZD/USD returned to 0.6070. AUD/NZD ranged between 1.0883 and 1.0919 (a one-month high).
The US ISM services index fell to 50.3 in May (est. 52.4, prior 51.9), with all major components also falling, prices to 56.2, employment to 49.2 and new orders to 52.9. Factory orders in April rose 0.4% (est. 0.8%, prior 0.6%).
Interest rates
US 2yr treasury yields rose from 4.50% to 4.57% then fell on the ISM data, closing at 4.47%, while the 10yr yield traded a range of 3.66% to 3.76%, closing at 3.68%. Markets are pricing the Fed funds rate, currently 5.125% (mid), to be 8bp higher at the next meeting on 15 June, with a peak of 5.29% in July.
Australian 3yr government bond yields (futures) roundtripped from 3.55% to 3.61% and back, the 10yr yield from 3.77% to 3.83% and back. Markets are pricing the RBA cash rate, currently 3.85%, to be 11bp higher after today’s meeting, with a peak of 4.19% in October.
New Zealand markets are pricing the RBNZ OCR, currently 5.50%, to be 3bp higher at the next meeting on 12 July and to peak at 5.61% in October.
Commodities
Crude markets opened up circa 4% on the high on Monday morning in Asian trade after Saudi Arabia’s ‘go-it-alone’ production cut with the July WTI contract trading above $75 for the first time in a month and the July Brent contract also hitting a 4-week high. However, by the end of the session, both markers had filled their gaps back to the Friday NY close and are up just modestly into the close. The July WTI contract is up 41c at $72.15 as we write while the August Brent contract is last up 44c at $76.57. Traders were more focused on the fact that Russia made no commitment to curb output and signs of disagreement between Saudi Arabia and African members on how their cuts are measured, hence the muted reaction. Normally super bullish Goldman described the OPEC outcome as “moderately bullish” while Morgan Stanley suggested the ‘broad market dynamics for the rest of 2023 and into 2024 remain practically unchanged’. However, UBS was more upbeat, suggesting that “the market will react further when the cut is implemented in one month’s time”.
Gas markets surged in Europe, however, helped by the ongoing outage at the Norne field in Norway, signs that US shipments are favouring Asia over Europe and waning rig counts around the world. The July TTF contract jumped 20% and the July Rotterdam coal contract jumped 15% to a 3-week high, helped by signs that utility companies were locking in prices to switch from gas to coal to produce power next year.
Metals were more mixed after the China stimulus-induced bounce late last week. Copper is up 1.1% to a 3-week high at $8,328 though aluminium is down 1% at $2,240 and nickel down 1.9% at $20,815. After a historic bout of weakness in May, the spot to 3-month copper spread has been tightening as readily available on-warrant LME copper fell by almost 18kt, the largest tonnage drop since October 2021. News that China is considering stepping up support for property markets appeared to be helping sentiment though economists were suggesting that moves would be targeted towards industries that require a boost rather than a broad-based ramp up in fiscal policy. Government data for copper production in Peru showed a 30%yy jump in production in April.
Iron ore markets continued the strong rally that kicked off late May with the July SGX contract up 90c from the same time yesterday to $105.80 and the 62% Mysteel index up $2 to $108.55. The September Dalian contract hit a fresh 7-week closing high. China stimulus news was a key factor supporting sentiment though news of a derailment in South Africa which caused operations serving a key railway for iron ore exporters to be “severely disrupted” added to the move. Goldman revised down its forecast for the second half of 2023 for iron ore to $90, pointing to an “increasingly oppressive global steel demand environment”. Meanwhile spot rebar prices were quoted circa 3% higher to an almost 3-week high while biller prices were almost 5% higher in a sign that the physical market in China is responding to the China property stimulus news.
Day ahead
At today’s Board meeting (2:30pm Syd), Westpac anticipates that the RBA will keep the cash rate on hold at 3.85%. The Board raised rates 25bps in May after a brief pause in April, citing concerns that more persistent services inflation may delay the already slow return of inflation to the top of the RBA’s 2-3% target range. While the Board may still be uneasy and will likely consider a further move at the June meeting, we expect it to pause given the uncertain picture from recent inflation and labour force updates and the more general update on the wider economy due with the Q1 national accounts release tomorrow. That said, Governor Lowe’s statement will continue to exhibit a clear
tightening bias as risks to inflation dominate. In the Bloomberg survey, 20 forecasters look for no change, 10 for +25bp. Market pricing is also very divided, around +11bp, having been +14bp in the wake of the minimum wage decision.
At 11:30am Syd, Australia’s current account surplus in Q1 is expected to have fallen to $7bn as net exports subtract 0.3 ppts from growth due to a strong rebound in imports. Public demand likely ticked up 0.8% driven by investment.
Eurozone: Retail sales are expected to remain weak in April (market f/c 0.2%) as inflation and interest rates limit discretionary spending capacity.
Japan: The household spending survey is likely to show an extended decline in spending (market f/c: -2.2%).
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.