Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,000.00
  • Dow Average up 0.7% to 34,061.32
  • Aussie up 1.2% to 0.6512 per US$
  • U.S. 10-year yield fell 8.7bps to 4.5724%
  • Australia 3-year bond yield fell 2.8 bps to 4.28%
  • Australia 10-year bond yield fell 6.8 bps to 4.72%
  • Gold spot up 0.3% to $1,992.65
  • Brent futures down 2.3% to $84.89/bbl

Economic Events

  • 11:00: (AU) Oct. Melbourne Institute Inflation, prior 0%
  • 11:00: (AU) Oct. Melbourne Institute Inflation, prior 5.7%
  • 11:30: (AU) Oct. ANZ-Indeed Job Advertisements , prior -0.1%

Stocks rose and bond yields fell as signals of cooling in both the labor market and services reinforced the idea that the Federal Reserve is done with rate hikes — while bolstering bets on cuts as early as June.

All across Wall Street, the superlatives piled up on Friday, with the S&P 500 climbing almost 1% and notching its best week this year. The market’s “fear gauge” — the VIX — saw its biggest five-day plunge in 21 months. Banks had their largest weekly rally since November 2020. Treasuries gained, with two-year yields down 15 basis points to 4.84%. The dollar slid the most since July. Oil sank below $81.

Fed swaps now show traders see an only 16% chance of another hike by January, and have fully priced in a cut by June — instead of July. The US service sector expanded at the weakest pace in five months, job growth moderated and the unemployment rate climbed to 3.9%. Nonfarm payrolls increased 150,000 last month following a downwardly revised 297,000 in September. Wage growth slowed.

Other News

Australia’s central bank is forecast to raise interest rates on Tuesday, ending a four-meeting pause as persistent inflation and broader economic resilience suggest a further clampdown is needed to cool prices.

The Reserve Bank will lift its cash rate to a 12-year high of 4.35%, an overwhelming majority of economists surveyed by Bloomberg predict, in what will be Governor Michele Bullock’s first hike since taking charge. The RBA is trying to ensure inflation falls back inside its 2-3% target by the end of 2025 and may signal further tightening is needed.

The board will also be presented with the RBA staff’s quarterly update of forecasts at the meeting. These will be released in the Statement on Monetary Policy on Friday. Economists expect only marginal changes to the outlook.

That’s one reason why a handful of respondents in the Bloomberg survey expect the RBA will leave the cash rate at 4.1% for a fifth straight meeting.

Policymakers may also put a greater emphasis on their desire to engineer a soft landing, pointing to a potential turning point in the labor market that will see it soften as well as relentlessly downbeat consumer sentiment.

Australia’s central bank has been more cautious than the Federal Reserve, raising rates by 4 percentage points during the current campaign compared with 5.25 points in the US. Bullock and her colleagues are mindful of the impact of tightening on Australia’s highly geared borrowers who are overwhelmingly on variable rates, unlike the US where most mortgages are fixed for 30 years.

Bullock has repeatedly stressed that a key economic uncertainty is how rising borrowing costs impact Australian households. She has described the current cash rate of 4.1% as “restrictive,” signaling a higher hurdle to hikes.

While worries about the health of the consumer remain, data is still pointing to broader economic resilience to elevated rates and prices.

Recent data showed surprisingly hot inflation, much stronger than forecast retail sales while house prices climbed for an eighth straight month. That combination has prompted traders to price in about a 70% chance the RBA will act on its hawkish bias at Tuesday’s meeting.

Bullock has highlighted difficulties in cooling inflation, pointing to still-sticky services prices and geopolitical shocks from Eastern Europe to the Middle East and rising tensions elsewhere.

A key cushion for the A$2.3 trillion ($1.5 trillion) economy is surging population growth that’s boosting demand for everything from housing to transport and dining out. Historically, migration has allowed Australia to dodge recession.

Economists in a Bloomberg survey see a 50% probability of a recession — defined as two consecutive quarters of falling GDP — over the next 12 months.

It’s also yet to be seen whether Australia’s labor market can keep absorbing the surge in overseas migrants. The jobless rate has hovered in a 3.4-3.7% range since June 2022, levels last seen in the early 1970s.