Markets Daily
After a big week that saw US 10yr yields top 4.5% as the Fed boosted growth projections and scaled back 2024 rate cut projections, Friday's session ended with bond yields slipping from decade highs and the USD remaining elevated.
Friday
China equity indices showed solid gains, Shanghai +1.6%, Hong Kong +2.3%, aided by yet more pledges for support, including reports that policymakers are considering easing foreign ownership caps on local equities. AUD/USD firmed slightly on Friday aided by the more positive China sentiment, lifting from just above 0.6400 to around 0.6425. The second tier Judo Bank preliminary Sep manufacturing PMI slipped from 49.6 to 48.2, while their services index lifted from 47.8 to 50.5. Australia’s economic calendar remains quiet until August CPI on 27 September.
The BOJ met Friday and left their key ultra accommodative policy settings unchanged as expected (policy rate -0.1bp, hard 10yr bond cap 1.0%). Expectations had been building for Governor Ueda to strike a slightly less dovish tone and lay the groundwork for an eventual policy shift if a more positive wage and inflation cycle develops. But instead Ueda pledged ongoing support and stressed the need to spend more time assessing data, particularly wages and service prices, before raising rates. USD/JPY rose about 60 ticks Friday, retesting 10 month highs just above 148.40.
Currencies/Macro
The US dollar index closed up 0.2% on the day. EUR ranged between 1.0634 and 1.0672. USD/JPY rose from 147.90 to 148.42.
AUD initially rose from 0.6420 to 0.6465 before slipping to 0.6438. NZD similarly rose from 0.5935 to 0.5989 before slipping to 0.5959. AUD/NZD fell from 1.0825 to 1.0788.
US PMIs were mixed, services at 50.2 (est. 50.4, prior 50.5), manufacturing 48.9 (est. 48.2, prior 47.9), and composite at 50.1 (est. 50.4, prior 50.2).
FOMC member Bowman said "I continue to expect that further rate hikes will likely be needed to return inflation to 2% in a timely way”, due to the expected slow progress tackling inflation. Collins said: “I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table”. Daly said: “We will not be satisfied that we are where we need to be until there is more confidence that inflation is on a path back to price stability”.
Eurozone PMIs remained weak. The composite index did beat estimates at 47.1 (est. 46.5, prior 46.7), due to a lift in services to 48.4 (est. 47.6, prior 47.9), but manufacturing fell to 43.4 (est. 44.0, prior 43.5). UK PMIs showed softer services at 47.2 (est. 49.4, prior 49.5), while manufacturing rose to 44.2 (est. 43.2, prior 43.0).
ECB chief economist Lane said that "future decisions will ensure that the key ECB interest rates will be set at a sufficiently restrictive levels for as long as necessary…The high level of two-sided uncertainty around the baseline means that we will remain data dependent in determining the appropriate level of restrictiveness in our monetary stance". He added that the most recent rate hike would help to shield the economy from upside shocks to inflation.
Interest rates
US 2yr treasury yields fell from 5.14% to 5.11%, while 10yr yield fell from 4.50% (highest since 2007) to 4.43%. Markets price the Fed funds rate, currently 5.375% (mid), to be 7bp higher at the next meeting in November, with a 55% chance of a hike in December.
Australian 3yr government bond yields (futures) fell from 4.05% to 4.01%, while the 10yr yield fell from 4.38% to 4.33%. Markets price the RBA cash rate, currently at 4.10%, to be 3bp higher in October, with a 100% chance of a hike by March 2024. New Zealand rates markets price the OCR, currently at 5.50%, to be 5bp higher in October, with a 100% chance of a hike by April 2024.
Credit spreads outperformed the broader market with Main and CDX both a touch tighter (less than half a bp at 77 and 72.5 respectively), and US cash spreads also a flat to a couple of bp better. Primary was limited to a couple of EUR issuers with Deutsche Boerse pricing a EUR3bn, 3 part (3/6/10yr) deal and RBC a EUR750M 7yr at MS+115 (BBSW+176). The US saw ~USD16bn priced last week taking the September total to USD106bn with a week remaining.
Commodities
Crude markets finally showed some signs of profit taking last week after the rip higher seen through late August and the first half of September. The ‘higher for longer’ message from the Fed plus the stronger US$ weighed on sentiment late last week with the November WTI contract closing up 40c Friday at $90.03 but down 0.8% on the week while the November Brent contract fell 3c Friday to $93.27 and down 0.7% on the week. The Russian fuel embargo which came into force on September 21 saw European fuel markets tighten during the week with the IEA warning that Russia’s block on exports of diesel and other fuels “threatens to tighten global middle distillate markets”. Russia was the largest seaborne exporter of diesel type fuels in 2023 according to Vortex data, shipping more than 1mbpd during the January to September period, with Turkey, Brazil and Saudi Arabia being among the main destinations. Diesel prices in Europe have jumped circa 50% this quarter while the US equivalent has risen circa 40%. The EU Director General for Energy Ditte Jorgensen told the FT that Europe “would have to rely on US fossil fuels for decades to come”. The FT also reported that Russia was dodging the G7 price cap on “most of its oil exports” with “almost three-quarters of all seaborne Russian crude travelling without western insurance in August”. Finally note that despite Chevron confirming it had accepted an Australian union proposal ending industrial action which commenced September 8, European gas markets prices hit highs for the month with the October TTF contract up 9% last week.
Metals managed a modest bounce into the end of a difficult week as the ‘higher for longer’ Fed message and stronger US$ weighed on sentiment. Copper closed largely unchanged at $8,198 after hitting a low back to June earlier in the week, though nickel closed up 1.5% at $19,415 and aluminium up 1.8% at $2,251. Global copper inventory has risen circa 40% so far this quarter, hitting highs back to March of this year.
Finally note that iron ore markets held close to the recent $120 plus highs on optimism that Chinese stimulus plus restocking demand would support prices. The October SGX contract was up $2.15 from the same time Friday at $119.50 while the 62% Mysteel index rose $3.10 to $123.00. Recent moves by Chinese authorities to relax home purchase rules seem to have had an impact with existing home sales in Shenzhen, Beijing and Guangzhou rising 32.5%, 19.8% and 28.6% in the September 11-15 period from the prior week according to a report from China Index Academy.
Day ahead
Australia: The RBA’s Jones (Assistant Governor Financial System) will be a panel participant at a financial technology conference.
Germany: Another modest easing is anticipated in the September IFO business climate survey, as the impact of rate hikes weigh on assessments of current conditions (market f/c: 85.2).
US: The Dallas Fed index is expected to post a moderate improvement in September but remain in weak territory (market f/c: –13). While softer results through August will likely see a subdued Chicago Fed activity index, abating recession risks could see an improvement in time (market f/c: 0.05). The FOMC’s Kashkari is also due to speak.
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
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.