Markets Daily

Bond yields and the US dollar rose in response to second-tier US economic data (jobless claims, inflation expectations). Australian yields rose in response to RBA Governor Bullock’s speech but AUD slipped to 0.6540. Today we see November PMIs in the Eurozone and UK while US markets are closed for Thanksgiving.

Yesterday

Major currencies were mostly little changed to a touch weaker against the US dollar, after recent strong gains. News flow was light, with perhaps only a flicker of improvement in risk appetite on the Israel-Hamas hostage agreement. AUD/USD touched 0.6570 at the time of those headlines, but generally traded quietly ahead of the Bullock speech, -0.2% in late trade at 0.6540.

Currencies/Macro

The US dollar was either flat or firmer against G10 FX on the day. EUR/USD fell from 1.0910 to 1.0885. GBP/USD fell 45 pips to 1.2495. USD/JPY rose from 148.40 to 149.60. AUD/USD dipped to 0.6521 then trimmed losses to -0.2% at 0.6540. NZD/USD fell a net 30 pips to 0.6020. AUD/NZD rose 0.25% to 1.0865.

RBA Governor Bullock delivered a speech overnight to the annual Australian Business Economists dinner, including some hawkish comments on Australia’s inflation challenge, saying it is “increasingly homegrown and demand driven…If inflation is simply the product of global supply disruptions or other price rises” then the appropriate interest-rate response would be limited…However, a more substantial monetary policy tightening is the right response to inflation that results from aggregate demand exceeding the economy’s potential to meet that demand.”

US weekly initial jobless claims were lower than expected at 209k (est.228k, prior 233k), with continuing claims at 1940k (est. 1875k, prior 1862k).

US durable goods orders, a volatile series, fell -5.4%m/m in October (est. -3.2%, prior revised to +4.0% from 4.6%). Ex-transport and non-defence orders were close to expectations.

November consumer sentiment (University of Michigan) was finalised higher at 61.3 (preliminary 60.4), with 1yr-ahead inflation expectations at 4.5% (est. and prelim. 4.4%) and 5-10yr-ahead at 3.2% (est. 3.1%, prelim. 3.2%).

Interest rates

US 2yr treasury yields bounced off an overnight low of 4.84% to 4.90%, while the 10yr yield bounced off 4.36% to 4.45% then closed at 4.40%, with the jobless claims data causing the initial rise, and then the inflation expectations survey. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be unchanged at the next few meetings, with a 50% of a rate cut in from May 2024.

Australian 3yr government bond yields (futures) initially rose from 4.08% to 4.17% following RBA Governor Bullock’s speech, later extending to 4.17% after the US data, while the 10yr yield rose overall from 4.44% to 4.52%. Markets are pricing no hike at the next meeting on 5 December, but a 70% chance of one by May 2024. New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 29 November, and in February as well, with a 40% chance of a rate cut by May 2024.

Credit markets continued to outperform with Main another bp tighter to 68, CDX in 1.5bp to 62.5 and US IG cash 2-3bp better in anticipation of tonight’s Turkey dinner. Notably, while US IG credit is now beginning to approach its low range for the year, banks are far from that mark having not yet recovered post SVB, providing further potential upside as relationships normalise. Primary activity remain light with the US effectively shut on the way into Thanksgiving while Europe saw 8 issuers price ~EUR4bn.

Commodities

Crude markets slumped circa 5% on news that the OPEC+ meeting slated for this weekend Sunday had been postponed until the following Thursday, though prices recovered much of the lost ground as fingers were pointed at African nations including Angola and Nigeria as the source of disagreement. The January WTI contract is down 86c at $76.91 while the January Brent contract is down 65c at $81.80. The EIA reported that Cushing stocks rose for the fifth consecutive week and national stocks rose by a hefty 8.7mb to the highest since July. However, a four-week measure of diesel demand hit the highest in almost a year and other oil stockpiles fell the most since September, taking some of the bearish slant off the report. Morgan Stanley described the upcoming OPEC decision as “especially critical now”. Bloomberg noted that the January Brent crude options contracts expire on Monday November 27, meaning that hedges put in place for the OPEC meeting will expire before the outcome is known.

Metals were also hit by the rise in the US$ and the deepening of bearish contango structures on the LME. Copper is down 0.9% to $8,376 while aluminium is down 1.6% to $2,221. Nickel fell by a hefty 2.9% to $16,505. The spot discount to 3-month copper dropped to a fresh record low at -$100 while Bloomberg noted that all six key metals traded on the LME are now in contango. LME on warrant zinc stocks rose by a hefty 56% to the highest since 2021 and nickel prices hit fresh two-year lows with Macquarie noting “an ongoing surge in nickel related exports” from Indonesia. Nickel prices are down 45% year to date. Codelco was cut by Fitch “due to declining output related to operational issues and the delayed completion of its key investment projects”. Codelco and the Japan Bank for International Cooperation signed a critical minerals funding accord covering the supply of copper, lithium and molybdenum.

Iron ore markets showed some signs of profit taking after the NDRC summonsed key market participants for a meeting where the current market structure was discussed. The December SGX contract is down $1 from the same time yesterday to $132.95 though the 62% Mysteel index (spot) rose 55c to $135.50.

Day ahead

Today we see S&P Global flash November PMIs in various jurisdictions, most notably the Eurozone and UK. The Eurozone PMIs will likely remain little changed in November, given manufacturing’s downbeat outlook and services activity experiencing a continual reduction in new orders growth (market f/c: 43.5 and 48.1, respectively).

In the UK, the S&P Global PMIs are expected to remain relatively stable in November, as manufacturing slows from struggling demand and services cools (market f/c: 45.0 and 49.5, respectively).

US markets will be closed due to Thanksgiving Day.