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European equities extended Asia’s rally as long term bond yields fell further, aided by a softer US ADP private payrolls report and lower US Q3 labour costs. But US equities faded, knocking AUD back to 0.6550. Today we see Australia October trade data, China November trade data and US weekly jobless claims.


The Australian economy limped along in Q3, expanding by just 0.2%. This is weaker than expected. Growth over the year was 2.1%, less than population growth over the same period. While the population surge earlier in the year has supported demand overall, it is now rolling over and will not provide the same support in 2024. Domestic final demand was up by 0.5% in the quarter and private final demand by just 0.2%. Implied pricing for the RBA cash rate dipped about 3bp in response but the Aussie was initially indecisive, before following the broad risk-on mood, rallying from 0.6565 to 0.6597 before consolidating. Equities accelerated over the afternoon, the ASX 200 closing up 1.7% to a high since September. 



The US dollar was either flat or firmer against most FX majors. EUR/USD slipped -0.3% to 1.0765, printing fresh lows since US October CPI on 14 November, while GBP also dropped -0.3% to 1.2555. USD/JPY ticked up 20 pips to 147.35. AUD/USD’s local session rally fizzled out, returning to 0.6550. NZD was also little changed net at 0.6135, leaving AUD/NZD a touch lower at 1.0670.


US November ADP private payrolls rose 103k, softer than est. of 130k and October was revised from a soft 113k to 106k. US final Q3 unit labour costs pulled back -1.2%q/q (est. -0.9%) and productivity rose to 5.2% (est. 4.9%, prelim. 4.7%). The US October trade Deficit was close to consensus at -USD64.3bn (est. -USD64.2bn).


The Bank of Canada left policy unchanged at 5.0%, as widely expected. More important for markets were the nuances in its statement and forward guidance. The economy was no longer “in excess demand” and current policy was seen as restraining spending as the labour market eases. Risks were more balanced, but BoC remains vigilant and will hike again if needed.


Interest rates

The US 2yr treasury yield held firm, lifting 1-2bps on the day to 4.595% though 10yr yields declined -5bps to 4.11%. Though pricing for the Fed funds rate for 14 December remains unchanged (currently 5.375% mid), March 2024 pricing for a cut approached 75%. December 2024 Fed pricing pared back to -125bps or 4.08%.


Australian 3yr government bond yields (futures) rebounded to imply 3.85%, while the 10yr yield fell back to 4.25%. Market pricing in February 2024 is effectively for zero change. New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 28 February, with no further rate hikes in this cycle, and around 21bps cut for August 2024.


Credit spreads were little changed with indices continuing to hover around their year to date lows which sees Main at 67 and CDX at 62.5, the strong rally in US IG cash through November has also taken a breather and primary volumes slowed last night ahead of payrolls on Friday.  



Crude hit five-month lows despite an EIA report suggesting crude inventory, production and exports all fell last week. The January WTI contract is down a hefty 4% at $69.40 while the February Brent contract is down 3.7% at $74.33. The EIA reported that crude inventory fell 4.6mb last week while production dipped 100kbpd and exports fell 416kbpd. This was deemed to be inconsistent with tanker activity data and Bloomberg noted that the so-called adjustment factor (or margin of error) was the largest on record. Trader focus was on gasoline inventory which surged 5.4mb and distillate which jumped 1.268mb. Implied gasoline demand has plunged nearly 0.5mbpd over the last 3 weeks while distillate demand is at lows back to September. Gasoline futures are down 3.7% to an almost 1 year low. Russian Deputy PM Novak said Tuesday that “in case the current steps are not enough, OPEC+ countries will take additional steps to avoid speculations and volatility”. Putin arrived in UAE and will later fly to Saudi Arabia to meet Crown Prince MBS in his first visits since the Ukraine war. Bloomberg estimated that 45% of Russia’s crude has been moved by “shadow” tankers this year with the fleet becoming “entrenched” as long as “regulators are unable to act against it”. Domestic and shadow fleet owners moved 70% of Russian oil, meaning that Russia’s net oil revenue doubled between April and October. US natural gas prices hit close to 3-month lows as forecasts pointed to warmer weather ahead for the US.


Metals slumped as the technical picture deteriorated further and weak China data weighed on sentiment. Copper fell another 1.2% to $8,341 while zinc fell 1.4% to $2,418 and nickel fell 2.6% to $16,280. Aluminium closed below $2,200 for the first time since August. Moody’s outlook cut on Chinese sovereign bonds and banks continued weighing on sentiment and Chile announced it was targeting an acceleration in its copper production with a target of adding 1.04mmt by 2026, a 20% jump from last year’s production. Bloomberg noted that that’s the equivalent of adding another Escondida “which seems a bit early”.


Iron ore markets remained resilient in the face of the recent Moody’s move and disappointing China property developments with the focus on steel mill stockpiles plunging to the lowest since January 2022. The January SGX contract is up $2.20 from the same time yesterday at $131.29 while the 62% Mysteel index is up $2.15 at $133.40. We caution that on a rolling monthly average basis, steel stockpiles at large steel mills are still above average for this time of year, though the sharp drop at the end of November does suggest the construction industry is restocking ahead of an expected increase in activity in Q1 while steel prices continue rising helping to improve steel margins. Rio announced it will spend $6.2bn on the giant Simandou project in Guinea, with first iron ore expected from 2025, sooner than most analysts had expected. The project will ramp up over 30 months from 2025 to an annualised capacity of 60mtpy with an average grade of 65.3% with low impurities according to a press release.


Day ahead

At 11:30am Syd, Australia’s October trade in goods surplus is expected to rise, with a 3.5% jump in exports attributed to a bounce in commodity prices, and a 2.9% reduction in imports representing a partial spike reversal (Westpac f/c: $9.50bn; market f/c: $7.50bn).


China: November’s trade balance should reveal diverging trends, with strong Asian demand and Europe/US softening (market f/c: US$54.90bn). Furthermore, foreign reserves are anticipated to remain little changed, with authorities focused on the stability of the TWI and not USD/CNY (market f/c: US$3139.50bn).


Eurozone: There is minimal expectation for the final estimate of Q3 GDP to differ from the prior quarter’s print (market f/c: -0.1%qtr).


US: Initial jobless claims are still near their lows for the time being (market f/c: 220k). Moreover, October’s consumer credit will likely reflect the impact of rate hikes (market f/c: $8.50bn).

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