Markets Overview

  • ASX SPI 200 futures up 0.3% to 6,890.00
  • Dow Average up 0.7% to 33,168.14
  • Aussie up 0.3% to 0.6358 per US$
  • U.S. 10-year yield fell 3.4bps to 4.8166%
  • Australia 3-year bond yield fell 7 bps to 4.14%
  • Australia 10-year bond yield fell 9.5 bps to 4.69%
  • Gold spot little changed at $1,972.63
  • Brent futures down 2.1% to $87.97/bbl

Economic Events

  • 11:30: (AU) 3Q CPI Trimmed Mean QoQ, est. 1.0%, prior 0.9%
  • 11:30: (AU) 3Q CPI Trimmed Mean YoY, est. 5.0%, prior 5.9%
  • 11:30: (AU) 3Q CPI Weighted Median QoQ, est. 1.0%, prior 1.0%
  • 11:30: (AU) 3Q CPI Weighted Median YoY, est. 5.0%, prior 5.5%
  • 11:30: (AU) Sept. CPI YoY, est. 5.3%, prior 5.2%
  • 11:30: (AU) 3Q CPI QoQ, est. 1.1%, prior 0.8%
  • 11:30: (AU) 3Q CPI YoY, est. 5.3%, prior 6.0%

A $201 billion exchange-traded fund tracking the Nasdaq 100 (QQQ) whipsawed in late hours as Microsoft Corp. climbed, while Google’s parent Alphabet Inc. dropped after reporting earnings.

The results came after the end of a session marked by a rebound in stocks, with the S&P 500 halting a five-day slide. Also after the closing bell, Texas Instruments Inc. gave a disappointing revenue forecast and Visa Inc. reported profit that beat Wall Street estimates. Treasury 10-year yields edged lower. Oil declined below $84 a barrel. Bitcoin briefly topped $35,000.

Investors looking to the earnings season for a dose of good news are hanging their hopes on big tech. The five largest companies in the S&P 500 account for about a quarter of the benchmark’s market capitalization. Their earnings are projected to jump 34% from a year earlier on average, according to analyst estimates compiled by Bloomberg Intelligence.

Rising rates have made already stretched big tech valuations look increasingly expensive, with the group remaining the most-crowded trade among fund managers, according to Bank of America Corp.

The pain in long-duration growth stocks, fueled in recent weeks by a relentless surge in Treasury yields, is finally on the verge of subsiding. That is, at least, if the so-called Taylor Rule is anything to go by.

The equation, posited by Stanford economist John Taylor in 1993, has become a way to measure how the Federal Reserve can use its overnight bank lending rate to tame inflation or stimulate the economy. Now, it’s approaching a critical inflection point for the US equity market by signaling that the central bank has finally normalized rates.

In economic news, US business activity picked up in October after back-to-back months of stagnation, helped by a rebound in factory demand and an easing in service-sector inflation.

Elsewhere, Chinese President Xi Jinping stepped up support for the economy, issuing additional sovereign debt, raising the budget deficit ratio and even making an unprecedented visit to the central bank. Bank of Japan officials are likely to monitor bond yield movements until the last minute before making a decision on whether to adjust the yield curve control program at a policy meeting next week, according to people familiar with the matter.

Other News

Australia’s central bank “will not hesitate” to raise interest rates further if there’s a material upgrade to its inflation outlook, new Governor Michele Bullock said, in her strongest reference yet to the threat of renewed price pressures.

“Our focus remains on bringing inflation back to target within a reasonable timeframe, while keeping employment growing,” Bullock said in a speech Tuesday. The RBA board meets on Nov. 7 to decide policy, with money markets seeing just under a 40% chance of a hike to take the cash rate to 4.35%.

While the RBA releases its updated quarterly forecasts three days after the rate decision, board members will have access to the numbers at the policy meeting.

“The board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation,” Bullock said. At the same time, she added, it’s mindful that demand growth and the rate of inflation have been moderating, and there are long lags in policy transmission.

The RBA has paused at its past four meetings after raising rates by 4 percentage points between May 2022 and June this year. Third-quarter inflation data out Wednesday are expected to show a deceleration to 5.3% from 6% — still well above the 2-3% CPI target.

The central bank’s current forecasts predict headline prices will only fall back within the target band in late 2025. “It is a reasonable tolerance,” Bullock said in response to an audience question on the timeframe for inflation. “But we don’t have a lot of tolerance for a shift out” beyond that.

Pressed on whether the bank had fallen behind the curve in fighting inflation, Bullock pushed back. She acknowledged the RBA has been “a bit” more cautious than global counterparts, but also highlighted the prevalence of floating-rate mortgages in Australia that mean policy tightening is more potent.

The governor declined to offer any forward guidance when questioned on the likely next move.

The RBA’s pause has allowed it time to assess the impact of tightening so far amid a mixed economic picture — consumers are downbeat while corporate confidence is holding up.

Retail sales show household spending is close to stagnating while a small, yet growing number of Australians are in the early stages of financial stress. On the flip side, the labor market persists in defying the RBA’s rate hikes with hiring staying strong and the jobless rate surprisingly sliding to 3.6% last month. The housing market has also staged a surprising rebound.

Bullock used her first speech as governor to restate the policy framework the central bank operates within and to highlight some of the tweaks that are being made following an independent review of the institution.

The RBA chief said she is working with Treasurer Jim Chalmers to “modernize and clarify” the RBA’s objectives of low and stable inflation and full employment after the review urged this mandate be made “more explicit.”

“These changes won’t, however, fundamentally change the way we formulate monetary policy,” Bullock said. “Over time, low inflation and full employment go hand in hand.”

There have been calls for the RBA to have a fixed numerical target for full employment, a move that would be “unwise,” according to the governor.

“For one, full employment can change over time, as the structure of our economy evolves,” she said. “It is also not a concept that can be directly measured. And it cannot be comprehensively summarized by a single statistic such as the unemployment rate.”