Markets Overview
- ASX SPI 200 futures little changed at 8,402.00
- Dow Average little changed at 44,399.90
- Aussie down 0.9% to 0.6382 per US$
- US 10-year yield rose 1.7bps to 4.2186%
- Australia 3-year bond yield fell 8.3 bps to 3.70%
- Australia 10-year bond yield fell 6.1 bps to 4.14%
- Gold spot up 1.2% to $2,692.61
- Brent futures down 0.2% to $71.98/bbl
Economic Events
- 18:00: (AU) RBA’s Hauser-Speech
Stocks fell and bond yields rose, with Wall Street traders gearing up for inflation data that will help determine whether the Federal Reserve will cut or hold rates next week.
Just a day ahead of the consumer price index, the S&P 500 pushed further away from its all-time highs. Oracle Corp. sank on uninspiring results. Meantime, Alphabet Inc. rallied as analysts applauded the Google parent’s announcement of a major development in quantum computing through the use of its Willow quantum chip. Homebuilders got hit as Toll Brothers Inc.’s profit-margin projection fell short of estimates.
“Animal spirits take a breather ahead of CPI,” said Jose Torres at Interactive Brokers. “US stocks are stalling near all-time highs as investors await this year’s final CPI report, which is expected to reflect another increase in the annualized headline figure.”
Wednesday’s CPI will offer Fed officials a final look at the pricing environment ahead of their next meeting. Any indication that inflation progress has stalled could well undercut the chances of a rate cut. For now, swap trading projects an 80% chance of a quarter-point Fed reduction this month.
The market is pricing in the smallest implied reaction to CPI since 2021, according to Bank of America Corp. strategists, who argue the readout will matter more this time.
“A softer print can clear the path for a year-end rally, with the second half of December being the second strongest period of the year,” a team led by Ohsung Kwon said. “On the contrary, a firmer print can revamp volatility,” particularly after the post-election rally.
The S&P 500 fell 0.3%. The Nasdaq 100 slid 0.3%. The Dow Jones Industrial Average slipped 0.3%.
Treasury 10-year yields rose two basis points to 4.22%. The Bloomberg Dollar Spot Index added 0.1%.
“Upward momentum wanes as investors trim some profits ahead of upcoming inflation data,” said Craig Johnson at Piper Sandler. “Primary uptrends remain intact, underpinned by bullish market breadth. Use pullbacks that confirm support levels as buying opportunities, particularly among leading sectors.”
CPI figures on Wednesday are expected to show a fourth straight 0.3% increase in the consumer price index excluding food and fuel. The data will be the last major inflation data point before the Fed’s final policy meeting of the year.
A survey conducted by 22V Research shows that 37% of investors expect the market reaction to CPI to be “risk-off.” There is an even split between the percentage of investors who bet the reaction will be “risk-on” and “mixed/negligible.”
Moreover, the 22V tally revealed that 61% of investors believe that core CPI is on a “Fed-friendly” glide path — without a significant tightening of financial conditions or a recession. This is the highest value since February. And 37% say financial conditions need to tighten. That compares with last month’s 45%.
To Bret Kenwell at eToro, one metric to watch is year-over-year core CPI, which has been at 3.3% in each of the last two months. Current expectations again call for 3.3%.
“An in-line or lower reading likely cements a rate cut, while a higher-than-expected result could create some doubt over whether the Fed should cut rates again,” he noted.
The Fed is focused on both maintaining full employment and inflation, which has stubbornly stalled in the 3% range after a steep decline in 2022 and 2023, according to Matthew Weller at Forex.com and City Index.
“Nonetheless, the majority of Fed speakers in recent weeks have indicated that the central bank is on track to cut interest rates by 25 basis points at the upcoming December meeting, even if that perspective isn’t necessarily unanimous at this point,” he noted.
Win Thin and Elias Haddad at Brown Brothers Harriman & Co. say that if the Fed does indeed reduces rates, it will be a “hawkish cut” that sets up a pause in January — and perhaps beyond.
Other News
Australia’s business confidence fell sharply in November and conditions, which measure jobs, sales and profitability, softened further in another sign that the private sector of the economy is under heavy pressure.
A National Australia Bank Ltd. survey showed Tuesday that business confidence slid 8 points to -3 points, reversing gains made in October. Conditions fell to 2 points from 7 with all three subcomponents now either at or below average.
“Overall, the survey points to ongoing soft growth in Q4,” NAB said in the report. “With capacity utilization unchanged at an above-average level it will likely take more time for price pressures to fully normalize.”
The report comes just hours ahead of the Reserve Bank’s final interest rate decision of the year when it is all-but-certain to leave policy settings at a 13-year high of 4.35%. Data last week showed Australia’s economy recorded another weak quarterly reading in the three months through September, prompting traders to bring forward rate-cut bets to April from May.
Tuesday’s report showed forward orders declined further to -5 points, led by weakness in mining and retail, the report showed. The goods production and distribution sectors – particularly manufacturing and retail – were the weakest in trend terms.
In contrast, conditions in the services sectors – recreation & personal services and finance, business & property services — continued to track at a higher rate, NAB said.
The report also showed:
- Trading conditions slumped to 5 points from 13 in October, profitability slipped to -1 and employment inched lower
- Conditions fell in all industries except construction and mining
- Quarterly labor costs were unchanged at 1.4% and purchase costs ticked up to 1.1%, from 0.9% in October
(Bloomberg)
