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Australian Q3 GDP partials point to a strong growth backdrop, but this largely reflects stronger government spending. ACGBs (YM +2.0 & XM +2.5) are richer but off Sydney session bests. AUD/USD is down slightly.
Broader USD sentiment is up a touch, USD/CNH has risen to fresh YTD highs due to familiar drivers. Yen outperformance has waned due to higher US yields and better regional equities. JGB yields are little changed, despite a poor 10yr auction.
Later the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
JGB futures are holding an uptick, +2 compared to settlement levels, on a data-light session.
The 10-year JGB auction delivered disappointing results, with the low price falling short of expectations at 98.34. Additionally, the cover ratio dipped and the tail lengthened.
This came despite the auction offering an outright yield 10bps higher than last month, just below the July cyclical high. However, the 2s/10s yield curve had flattened to near its lowest point since mid-2023.
Weaker sentiment toward global long-end bonds—though somewhat improved from two weeks ago—and expectations of further near-term tightening by the BOJ appear to have weighed on demand.
Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session. Focus now turns to Wednesday's ADP private employment and ISM data ahead of Friday's non-farm payroll release.
Cash JGBs are slightly mixed across benchmarks. The benchmark 10-year yield is 0.3bp higher at 1.083% after today’s supply.
The swaps curve has bear-steepened, with rates flat to 2bps higher.
Tomorrow, the local calendar will see Jibun Bank PMI Composite & Services alongside BOJ Rinban Operations covering 1-5-year and 10-25-year OTR JGBs.
The next major release will be on Friday's wages data. Next week delivers Q3 GDP revisions then the Tankan survey is out on 13 December.
ACGBs (YM +2.0 & XM +2.5) are richer but off Sydney session bests.
The net export contribution to growth in Q3 was 0.1pp, less than expected, but the strongest public demand contribution since Q1 2022 means that GDP forecasts are likely to be little changed or maybe skewed to the upside.
Real public demand grew 2.4% q/q after 0.9% in Q2. It is expected to contribute 0.7pp to GDP tomorrow. The increase was driven by state & local government expenditure and public GFCF.
Cash US tsys are slightly cheaper in today’s Asia-Pac session. Focus now turns to Wednesday's ADP private employment and ISM data ahead of Friday's non-farm payroll release.
Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +10bps.
Swap rates are 2bps lower.
The bills strip has bull-flattened, with pricing flat to +3.
RBA-dated OIS pricing is flat 4bps softer for 2025 meetings. A 25bps rate cut is not fully priced until May.
Tomorrow, the local calendar will see S&P Global PMI Composite & Services and Q3 GDP data alongside AOFM’s planned sale of A$700mn of the 3.25% 21 April 2029 bond. The AOFM also plans to sell A$800mn of the 3.75% 21 April 2037 bond on Friday.
In the Q3 government finance statistics, real public demand grew 2.4% q/q after 0.9% in Q2. It is expected to contribute 0.7pp to GDP released on Wednesday. The increase was driven by state & local government expenditure and public GFCF. The current Q2 contribution from public demand is 0.4pp but it may be revised in the national accounts.
Final government expenditure was steady contributing 0.3pp to growth in Q3, while GFCF rose to 0.4pp.
The general government net operating balance deteriorated to a deficit of $18.3bn, the worst since the pandemic, from a surplus of $14.4bn in Q2 and a deficit of $9.8bn in Q3 2023. The deterioration was driven by a 17.3% q/q drop in tax revenue, while expenditure fell 2.1%.
General government net borrowing rose to $30.2bn from $6.3bn in Q2 and $21.8bn in Q3 last year.
While the Q3 current account deficit narrowed to $14.15bn, Q2 was revised significantly from $10.7bn to $16.4bn. The improvement was driven by a narrower primary income deficit, as the goods and services surplus declined mainly due to services. The net export contribution to growth was 0.1pp, less than expected, but the strongest public demand contribution since Q1 2022 means that GDP forecasts are likely to be little changed or maybe skewed to the upside.
Australia current account A$bn
Source: MNI - Market News/ABS
The goods & services surplus narrowed to $3.3bn from $6.5bn in Q2, while the merchandise surplus narrowed to $15.1bn from $15.5bn, the services deficit increased to $11.8bn from $9bn. Services exports fell 3% q/q, due to fewer overseas student arrivals, while imports rose 4.6%. Goods exports fell 2.3% q/q and imports 2.2%, due to lower fuel prices.
Non-rural goods exports declined 2.8% q/q after -5.7% to be down 7.5% y/y, an improvement from Q2’s -8.5% y/y. Lower commodity prices have weighed on export values over much of 2023 and 2024. The merchandise terms of trade peaked in Q2 2022. This drove the lowest trade surplus in over six years.
The Q3 terms of trade fell 2.5% q/q and 3.9% y/y, after -3.8% y/y in Q2.
Australia terms of trade
Source: MNI - Market News/ABS
The primary income deficit narrowed to $17.3bn from $22.8bn, the best position for three years. The improvement was due to less Australian dividends paid out to overseas, according to the ABS.
The net international investment liabilities rose $20.6bn “primarily due to Australia’s net foreign debt liabilities rising by $56.6 billion to $1.3 trillion, reflecting a growth in overseas investors acquisition of debt securities issued by Australian banks.”
Q3 GDP prints on Wednesday and Bloomberg consensus is at 0.5% q/q and 1.1% y/y up from 0.2% and 1.0% in Q2. This would be the highest quarterly rate since Q2 2023 and all major components should make a positive contribution except inventories. The RBA looks firmly on hold at its December 10 meeting but a GDP print in line with consensus or higher could delay easing further.
Consensus estimates range from 0.3% to 0.7% q/q and 1.0% to 1.6% y/y. Of the large local banks ANZ is at consensus, CBA and NAB are lower forecasting 0.4% & 1.1% and 0.3% & 1.0% respectively.
There are a number of forecasts lodged with Bloomberg today and on average they are in line with the consensus. Westpac revised up its forecast 0.1pp after the net exports and public demand data to 0.6% q/q and 1.2%. Macquarie also submitted a forecast to Bloomberg today and is at 0.6% & 1.3%.
In terms of the Q3 data released, retail sales volumes rose 0.5% q/q. Services are also part of the household consumption number, which is not yet known. The ABS said that public demand contributed 0.7pp to growth with 0.3pp expenditure and 0.4pp capex. Private investment rose 1.1% q/q. Westpac estimates that domestic demand rose 0.9% q/q and inventories detracted 0.4pp from growth.
The ABS said that net exports contributed 0.1pp to Q3.
Productivity and unit labour costs are also included in this release and will be monitored closely. Productivity fell 0.8% q/q in Q2 and the RBA revised down its outlook in November.
NZGBs closed showing a bull-flattener, with benchmark yields flat to 4bps lower.
The NZGB 10-year slightly outperformed on the day, with the NZ-US and NZ-AU 10-year differentials 1-2bps tighter. At +10bps, the NZ-US differential sits near its tightest levels since mid-2021.
NZ export volumes fell for a second straight quarter, adding to signs of a mid-year recession. Exports of goods dropped 1.8% in the third quarter from the previous three months, Statistics New Zealand said. Imports rose 3%, meaning net exports — which are comparable to measures used in the gross domestic product report — fell 4.8% from the second quarter, when they dropped 7.9%. (per BBG)
Swap rates closed 3-7bps lower.
RBNZ dated OIS pricing closed flat to 2bps softer, with late-2025 leading. 42bps of easing is priced for February, with a cumulative 94bps by November 2025.
Tomorrow, the local calendar will see ANZ Commodity Prices. The RBNZ also appears before a Select Committee for its Annual Review.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
NZGBs closed the day in a bull-flattening pattern, with benchmark yields ending flat to 4bps lower.
The 10-year NZGB slightly outperformed, with the NZ-US and NZ-AU 10-year yield differentials tightening by 1-2bps.
The NZ-US 10-year differential, now at +10bps, is hovering near its tightest levels since mid-2021.
A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +9bps.
Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship.
The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
NZ recorded its third straight quarterly rise in the merchandise terms of trade in Q3. It rose 2.4% q/q to be up 1.2% y/y, the first positive annual rate since Q1 2022, after +2.1% q/q and -1.7% y/y in Q2, while services fell 0.9% q/q and 5.7% y/y. The improvement was driven by both goods export and import prices which rose 0.7% q/q and fell 1.7% q/q respectively. While the better terms of trade is positive for the economic outlook, Q3 merchandise net export volumes were soft.
Services import prices exceeded exports at 1.7% q/q compared to +0.7%.
Goods export volumes fell 1.8% q/q while imports rose 3.0% after -4.3% and +3.1% in Q2.
Q3 exports of goods and services values grew 2.9% y/y while imports were flat. Merchandise exports rose 4.4% y/y while services fell 0.7%.
The USD is up against all of the G10 currencies, albite to varying degrees. The BBDXY index was last +0.15% firmer, above the 1283 level, but still sub intra-session highs from Monday.
Aggregate G10 moves have been fairly modest. Yen has given back some of Monday's outperformance, at the margins. USD/JPY was last near 150.15/20, up around 0.35%. Earlier lows were at 149.50.
US yields have ticked higher as the session progressed, with the back end slightly firmer, up a little over 1.5bps. Regional equities have mostly tracked higher, aided by tech/chip stocks. US chip curbs on China were not as harsh as feared.
This has likely aided higher beta plays against the yen, albeit at the margins.
AUD/USD is still down for the session, last near 0.6470. NZD/USD is underperforming, off 0.20% to 0.5875/80, but is up from earlier lows of 0.5864.
USD/CNH has broken higher, above 7.3000, reaching fresh YTD highs. This has been another constraint on AUD and NZD trends.
On the data front, in Australia, Q3 net exports contributed 0.1pp, less than expected, and public demand 0.7pp to GDP growth. Q3 GDP is out tomorrow. In NZ the terms of trade improved, but good export volumes were weak.
Looking ahead, the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
CFTC positioning data was released late on Monday in the US (due to the Thanksgiving holiday at the end of last week). The table below updates FX positioning by currency and type of manager for the week ending the 26th of Nov.
Leveraged players cut back on CAD, JPY and EUR shorts for this period. The also added to GBP longs. AUD longs were cut, but this investor base is close to neutral in terms of outright positioning.
NZD flipped back to a net short for leveraged investors, but this was just prior to last week's hawkish 50bps cut from the RBNZ.
The USD index was close to recent highs last Tuesday on the 26th of Nov.
In the real money space, trends were mixed. Yen shorts were, but EUR longs were cut, and GBP shorts added to. CAD shorts were also cut. Note the 26th of Nov was the day of significant CAD weakness following the trump tariff threat.
Outright positioning in JPY remained short for both leveraged players and asset managers. This week's update may show further adjustments, given USD/JPY's slide sub 150.00.
Table 1: CFTC Positioning By Currency & Investor Type (Change & Outright Positions)
A generally good day across Asian equity markets with the KOSPI the outperformer as the new restrictions from the Biden administration on tech exports were not as punitive as feared.
The tech heavy KOSPI rose 1.60% as a weak CPI release suggested that the BOK may be forced to cut rates more than many expected.
China equities were weaker as the Yuan fixing was at the weakest level in over a year, suggesting the economy is weaker than expected.
China Equity markets were mixed today despite the supportive words from the PBOC Governor. CSI 300 flat, Hang Seng +0.36%, Shanghai +0.20% and Shenzhen -0.02%.
Indonesia’s Jakarta Composite shrugged off four straight days of losses to bounce up by +1.35% today following comments by the BI governor that pointed to rates being stable.
In Malaysia, following on from yesterday’s directionless day, the FTSE Bursa Malaysia KLCI faired only marginally better today up +0.22%.
India’s NIFTY 50 is putting in a second day of performance up +0.60% following solid PMI data.
Oil prices have been trading in a narrow range and are off their intraday lows to be down slightly on the day. WTI is down 0.1% to $68.18/bbl after a low of $67.91 and Brent is 0.1% lower at $71.93/bbl after falling to $71.68. The stronger US dollar continued to pressure crude (USD BBDXY +0.1%) offsetting mild optimism from China’s manufacturing PMI.
Cold weather in Europe has increased heating demand boosting natural gas prices, but also distillate which includes heating oil.
US industry-based inventory data is out later today. Crude stocks have been declining but products rising. The official EIA figures are on Wednesday.
The focus of the week will be Thursday’s OPEC+ meeting, where it seems likely that supply increases will be pushed out into Q1, and Friday’s US payrolls report.
Later the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
Gold traded in a very narrow range over night in a week that could determine the outcome of the last meeting for the year for the Federal Reserve on December 19.
Gold started the US trading day at $2,643.13, headed lower to $2,622 before finishing at $2,639.
It opened slightly firmer in Asia’s trading morning.
Gold markets are watching for indications from the US data as to whether the Federal Reserve will cut rates at it’s December meeting, a move that should benefit gold.
Yesterday’s announcement that Australia’s biggest gold miner, Northern Star, was buying its rival De Grey mining for $5 billion could be the start of a round of consolidation in the gold industry.
The potential uncertainty that is emanating from the White House and incoming President’s policies has driven investors to gold thereby giving the bigger mining companies the cashflow to take out their rivals.
Central Banks and Hedge funds are among the investors that are adding to their gold allocations, with the latter holding the biggest long positions since early November.
Korea’s MoM CPI declined -0.3% and y/y printed at +1.5%.
The y/y release was up on October, but missed expectations of +1.7%.
Inflation remains below the BOK target of 2%.
Following on from back to back rate cuts taking rates to 3.0%, the inflation print points to the challenges for the economy ahead.
The market at present is now pricing in -86bps of cuts over the next 12 months, which could indicate a more bearish outlook for Asia in general, not just for Korea.
At the most recent BOK meeting, they revised their 2025 inflation outlook to +1.9%.
Today’s print indicates the challenges meeting that +1.9% forecast and could be the start of further revisions downward.
Today’s CPI release in Korea sees inflation remaining below the BOK’s 2% target indicating the need for further rate cuts in 2025.
There may however be signs that inflation is stabilizing when looking at the release further.
CPI less energy and food increased +1.9% y/y whilst a commonly followed cost of living index rose from +1.2% in October to +1.6%.
It may be too soon to forecast that inflation is stabilizing but if it is, it may challenge the -88bps of rate cuts the market has priced over a in at present over a 1-year time horizon.
An additional challenge for the bond market in 2025 is likely to come from the politicians where it seems that the opposition is opposing the KRW677 trillion budget, placing pressure on the current government.
The budget proposed is a 3% increase in expenditure and likely to be funded via the bond market if approved.
If signs of inflation stabilising are met with new budget approval, the usually flat Korean 3s10s curve has the potential to steepen in 2025.
The PBOC’s Governor Pan was speaking at a financial forum on Monday where he reiterated the Central Bank’s commitment to supporting the economy.
The PBOC will “adhere to an accommodative monetary policy stand and orientation” Pan told the forum.
The Governor reiterated that the Central Bank will ‘step up counter-cyclical policy adjustments’ and that the ‘PBOC will also use various tools to keep liquidity ample and lower borrowing cost for companies and resident.’
Earlier in the year there was a belief that the authorities were adamant that the 10-year government bond yield should not be allowed to trade lower than 2.15%.
Today as the 10-year breaches 2.00%, the Governor’s comments may be pointing to much lower yields in China over the coming years.
The RBI’s bold growth target may be under threat as India’s data continues to moderate.
India’s HSBC Manufacturing PMI for November release today at 56.5 represents a material decline from last month’s 57.5 and significantly lower than March’s high of 59.1.
Output declined to 59.1 from 60.4
New orders have fallen from the prior month.
Whilst this data point in itself does not point to a rate cut, there is evidence that data is softening and could bring cuts on the table in 2025.
USD/CNH hit fresh YTD highs in early trade, getting to 7.3148, but we sit lower now, last close to 7.3000. This is still 0.20% weaker in CNH terms for the session so far. Spot USD/CNY has also risen, the pair last above 7.2900, fresh highs back to Nov 2023.
There didn't appear to be a fresh catalyst for today's yuan weakness. The fixing error widened and the actual fix held sub 7.2000. Recent tariff threats from incoming President Trump, along with depressed onshore yields (although we have seen a slight uptick today) appears to be weighing on sentiment still.
Local equities are close to flat, despite chip restrictions from the US, which were less harsh than feared.
Spot USD/KRW has fared slightly better. We are close to unchanged, last near 1404. The won is also outperforming a firmer USD/JPY backdrop. The local equity backdrop is quite strong, the Kospi up 1.70%, amid broader tech/chip gains. Offshore investors bought +$392.5mn of local shares so far today, a healthy inflow backdrop. Caution around fresh longs above 1400 could have also been tempered by earlier headlines around FinMin/NPS discussing the pension funds hedging.
Spot USD/TWD has pushed higher, the pair last making fresh highs of 32.65/70, amid broader USD gains. The better equity backdrop not helping to offset at this stage.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
03/12/2024
0700/0200
*
TR
Turkey CPI
03/12/2024
0730/0830
***
CH
CPI
03/12/2024
0800/0900
EU
ECB's Cipollone at GeoEconomy Talk
03/12/2024
1000/1000
**
GB
Gilt Outright Auction Result
03/12/2024
-
***
US
Domestic-Made Vehicle Sales
03/12/2024
1355/0855
**
US
Redbook Retail Sales Index
03/12/2024
1500/1000
***
US
JOLTS jobs opening level
03/12/2024
1500/1000
***
US
JOLTS quits Rate
03/12/2024
1630/1130
*
US
US Treasury Auction Result for Cash Management Bill
03/12/2024
1735/1235
US
Fed Governor Adriana Kugler
03/12/2024
1830/1330
US
Chicago Fed's Austan Goolsbee
03/12/2024
2045/1545
US
Chicago Fed's Austan Goolsbee
04/12/2024
2200/0900
*
AU
S&P Global Final Australia Services PMI
04/12/2024
2200/0900
**
AU
S&P Global Final Australia Composite PMI
04/12/2024
0030/1130
***
AU
Quarterly GDP
04/12/2024
0030/0930
**
JP
S&P Global Final Japan Services PMI
04/12/2024
0030/0930
**
JP
S&P Global Final Japan Composite PMI
04/12/2024
0145/0945
**
CN
S&P Global Final China Services PMI
04/12/2024
0145/0945
**
CN
S&P Global Final China Composite PMI
04/12/2024
0815/0915
**
ES
S&P Global Services PMI (f)
04/12/2024
0815/0915
**
ES
S&P Global Composite PMI (final)
04/12/2024
0845/0945
**
IT
S&P Global Services PMI (f)
04/12/2024
0845/0945
**
IT
S&P Global Composite PMI (final)
04/12/2024
0850/0950
**
FR
S&P Global Services PMI (f)
04/12/2024
0850/0950
**
FR
S&P Global Composite PMI (final)
04/12/2024
0855/0955
**
DE
S&P Global Services PMI (f)
04/12/2024
0855/0955
**
DE
S&P Global Composite PMI (final)
04/12/2024
0900/1000
**
EU
S&P Global Services PMI (f)
04/12/2024
0900/1000
**
EU
S&P Global Composite PMI (final)
04/12/2024
0900/1000
EU
ECB's Cipollone speech on behavioural financial regulations
04/12/2024
0900/0900
GB
BOE's Bailey keynote interview at the FT Boardroom
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY)
Australian Q3 GDP partials point to a strong growth backdrop, but this largely reflects stronger government spending. ACGBs (YM +2.0 & XM +2.5) are richer but off Sydney session bests. AUD/USD is down slightly.
Broader USD sentiment is up a touch, USD/CNH has risen to fresh YTD highs due to familiar drivers. Yen outperformance has waned due to higher US yields and better regional equities. JGB yields are little changed, despite a poor 10yr auction.
Later the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
JGB futures are holding an uptick, +2 compared to settlement levels, on a data-light session.
The 10-year JGB auction delivered disappointing results, with the low price falling short of expectations at 98.34. Additionally, the cover ratio dipped and the tail lengthened.
This came despite the auction offering an outright yield 10bps higher than last month, just below the July cyclical high. However, the 2s/10s yield curve had flattened to near its lowest point since mid-2023.
Weaker sentiment toward global long-end bonds—though somewhat improved from two weeks ago—and expectations of further near-term tightening by the BOJ appear to have weighed on demand.
Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session. Focus now turns to Wednesday's ADP private employment and ISM data ahead of Friday's non-farm payroll release.
Cash JGBs are slightly mixed across benchmarks. The benchmark 10-year yield is 0.3bp higher at 1.083% after today’s supply.
The swaps curve has bear-steepened, with rates flat to 2bps higher.
Tomorrow, the local calendar will see Jibun Bank PMI Composite & Services alongside BOJ Rinban Operations covering 1-5-year and 10-25-year OTR JGBs.
The next major release will be on Friday's wages data. Next week delivers Q3 GDP revisions then the Tankan survey is out on 13 December.
ACGBs (YM +2.0 & XM +2.5) are richer but off Sydney session bests.
The net export contribution to growth in Q3 was 0.1pp, less than expected, but the strongest public demand contribution since Q1 2022 means that GDP forecasts are likely to be little changed or maybe skewed to the upside.
Real public demand grew 2.4% q/q after 0.9% in Q2. It is expected to contribute 0.7pp to GDP tomorrow. The increase was driven by state & local government expenditure and public GFCF.
Cash US tsys are slightly cheaper in today’s Asia-Pac session. Focus now turns to Wednesday's ADP private employment and ISM data ahead of Friday's non-farm payroll release.
Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +10bps.
Swap rates are 2bps lower.
The bills strip has bull-flattened, with pricing flat to +3.
RBA-dated OIS pricing is flat 4bps softer for 2025 meetings. A 25bps rate cut is not fully priced until May.
Tomorrow, the local calendar will see S&P Global PMI Composite & Services and Q3 GDP data alongside AOFM’s planned sale of A$700mn of the 3.25% 21 April 2029 bond. The AOFM also plans to sell A$800mn of the 3.75% 21 April 2037 bond on Friday.
In the Q3 government finance statistics, real public demand grew 2.4% q/q after 0.9% in Q2. It is expected to contribute 0.7pp to GDP released on Wednesday. The increase was driven by state & local government expenditure and public GFCF. The current Q2 contribution from public demand is 0.4pp but it may be revised in the national accounts.
Final government expenditure was steady contributing 0.3pp to growth in Q3, while GFCF rose to 0.4pp.
The general government net operating balance deteriorated to a deficit of $18.3bn, the worst since the pandemic, from a surplus of $14.4bn in Q2 and a deficit of $9.8bn in Q3 2023. The deterioration was driven by a 17.3% q/q drop in tax revenue, while expenditure fell 2.1%.
General government net borrowing rose to $30.2bn from $6.3bn in Q2 and $21.8bn in Q3 last year.
While the Q3 current account deficit narrowed to $14.15bn, Q2 was revised significantly from $10.7bn to $16.4bn. The improvement was driven by a narrower primary income deficit, as the goods and services surplus declined mainly due to services. The net export contribution to growth was 0.1pp, less than expected, but the strongest public demand contribution since Q1 2022 means that GDP forecasts are likely to be little changed or maybe skewed to the upside.
Australia current account A$bn
Source: MNI - Market News/ABS
The goods & services surplus narrowed to $3.3bn from $6.5bn in Q2, while the merchandise surplus narrowed to $15.1bn from $15.5bn, the services deficit increased to $11.8bn from $9bn. Services exports fell 3% q/q, due to fewer overseas student arrivals, while imports rose 4.6%. Goods exports fell 2.3% q/q and imports 2.2%, due to lower fuel prices.
Non-rural goods exports declined 2.8% q/q after -5.7% to be down 7.5% y/y, an improvement from Q2’s -8.5% y/y. Lower commodity prices have weighed on export values over much of 2023 and 2024. The merchandise terms of trade peaked in Q2 2022. This drove the lowest trade surplus in over six years.
The Q3 terms of trade fell 2.5% q/q and 3.9% y/y, after -3.8% y/y in Q2.
Australia terms of trade
Source: MNI - Market News/ABS
The primary income deficit narrowed to $17.3bn from $22.8bn, the best position for three years. The improvement was due to less Australian dividends paid out to overseas, according to the ABS.
The net international investment liabilities rose $20.6bn “primarily due to Australia’s net foreign debt liabilities rising by $56.6 billion to $1.3 trillion, reflecting a growth in overseas investors acquisition of debt securities issued by Australian banks.”
Q3 GDP prints on Wednesday and Bloomberg consensus is at 0.5% q/q and 1.1% y/y up from 0.2% and 1.0% in Q2. This would be the highest quarterly rate since Q2 2023 and all major components should make a positive contribution except inventories. The RBA looks firmly on hold at its December 10 meeting but a GDP print in line with consensus or higher could delay easing further.
Consensus estimates range from 0.3% to 0.7% q/q and 1.0% to 1.6% y/y. Of the large local banks ANZ is at consensus, CBA and NAB are lower forecasting 0.4% & 1.1% and 0.3% & 1.0% respectively.
There are a number of forecasts lodged with Bloomberg today and on average they are in line with the consensus. Westpac revised up its forecast 0.1pp after the net exports and public demand data to 0.6% q/q and 1.2%. Macquarie also submitted a forecast to Bloomberg today and is at 0.6% & 1.3%.
In terms of the Q3 data released, retail sales volumes rose 0.5% q/q. Services are also part of the household consumption number, which is not yet known. The ABS said that public demand contributed 0.7pp to growth with 0.3pp expenditure and 0.4pp capex. Private investment rose 1.1% q/q. Westpac estimates that domestic demand rose 0.9% q/q and inventories detracted 0.4pp from growth.
The ABS said that net exports contributed 0.1pp to Q3.
Productivity and unit labour costs are also included in this release and will be monitored closely. Productivity fell 0.8% q/q in Q2 and the RBA revised down its outlook in November.
NZGBs closed showing a bull-flattener, with benchmark yields flat to 4bps lower.
The NZGB 10-year slightly outperformed on the day, with the NZ-US and NZ-AU 10-year differentials 1-2bps tighter. At +10bps, the NZ-US differential sits near its tightest levels since mid-2021.
NZ export volumes fell for a second straight quarter, adding to signs of a mid-year recession. Exports of goods dropped 1.8% in the third quarter from the previous three months, Statistics New Zealand said. Imports rose 3%, meaning net exports — which are comparable to measures used in the gross domestic product report — fell 4.8% from the second quarter, when they dropped 7.9%. (per BBG)
Swap rates closed 3-7bps lower.
RBNZ dated OIS pricing closed flat to 2bps softer, with late-2025 leading. 42bps of easing is priced for February, with a cumulative 94bps by November 2025.
Tomorrow, the local calendar will see ANZ Commodity Prices. The RBNZ also appears before a Select Committee for its Annual Review.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
NZGBs closed the day in a bull-flattening pattern, with benchmark yields ending flat to 4bps lower.
The 10-year NZGB slightly outperformed, with the NZ-US and NZ-AU 10-year yield differentials tightening by 1-2bps.
The NZ-US 10-year differential, now at +10bps, is hovering near its tightest levels since mid-2021.
A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +9bps.
Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship.
The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
NZ recorded its third straight quarterly rise in the merchandise terms of trade in Q3. It rose 2.4% q/q to be up 1.2% y/y, the first positive annual rate since Q1 2022, after +2.1% q/q and -1.7% y/y in Q2, while services fell 0.9% q/q and 5.7% y/y. The improvement was driven by both goods export and import prices which rose 0.7% q/q and fell 1.7% q/q respectively. While the better terms of trade is positive for the economic outlook, Q3 merchandise net export volumes were soft.
Services import prices exceeded exports at 1.7% q/q compared to +0.7%.
Goods export volumes fell 1.8% q/q while imports rose 3.0% after -4.3% and +3.1% in Q2.
Q3 exports of goods and services values grew 2.9% y/y while imports were flat. Merchandise exports rose 4.4% y/y while services fell 0.7%.
The USD is up against all of the G10 currencies, albite to varying degrees. The BBDXY index was last +0.15% firmer, above the 1283 level, but still sub intra-session highs from Monday.
Aggregate G10 moves have been fairly modest. Yen has given back some of Monday's outperformance, at the margins. USD/JPY was last near 150.15/20, up around 0.35%. Earlier lows were at 149.50.
US yields have ticked higher as the session progressed, with the back end slightly firmer, up a little over 1.5bps. Regional equities have mostly tracked higher, aided by tech/chip stocks. US chip curbs on China were not as harsh as feared.
This has likely aided higher beta plays against the yen, albeit at the margins.
AUD/USD is still down for the session, last near 0.6470. NZD/USD is underperforming, off 0.20% to 0.5875/80, but is up from earlier lows of 0.5864.
USD/CNH has broken higher, above 7.3000, reaching fresh YTD highs. This has been another constraint on AUD and NZD trends.
On the data front, in Australia, Q3 net exports contributed 0.1pp, less than expected, and public demand 0.7pp to GDP growth. Q3 GDP is out tomorrow. In NZ the terms of trade improved, but good export volumes were weak.
Looking ahead, the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
CFTC positioning data was released late on Monday in the US (due to the Thanksgiving holiday at the end of last week). The table below updates FX positioning by currency and type of manager for the week ending the 26th of Nov.
Leveraged players cut back on CAD, JPY and EUR shorts for this period. The also added to GBP longs. AUD longs were cut, but this investor base is close to neutral in terms of outright positioning.
NZD flipped back to a net short for leveraged investors, but this was just prior to last week's hawkish 50bps cut from the RBNZ.
The USD index was close to recent highs last Tuesday on the 26th of Nov.
In the real money space, trends were mixed. Yen shorts were, but EUR longs were cut, and GBP shorts added to. CAD shorts were also cut. Note the 26th of Nov was the day of significant CAD weakness following the trump tariff threat.
Outright positioning in JPY remained short for both leveraged players and asset managers. This week's update may show further adjustments, given USD/JPY's slide sub 150.00.
Table 1: CFTC Positioning By Currency & Investor Type (Change & Outright Positions)
A generally good day across Asian equity markets with the KOSPI the outperformer as the new restrictions from the Biden administration on tech exports were not as punitive as feared.
The tech heavy KOSPI rose 1.60% as a weak CPI release suggested that the BOK may be forced to cut rates more than many expected.
China equities were weaker as the Yuan fixing was at the weakest level in over a year, suggesting the economy is weaker than expected.
China Equity markets were mixed today despite the supportive words from the PBOC Governor. CSI 300 flat, Hang Seng +0.36%, Shanghai +0.20% and Shenzhen -0.02%.
Indonesia’s Jakarta Composite shrugged off four straight days of losses to bounce up by +1.35% today following comments by the BI governor that pointed to rates being stable.
In Malaysia, following on from yesterday’s directionless day, the FTSE Bursa Malaysia KLCI faired only marginally better today up +0.22%.
India’s NIFTY 50 is putting in a second day of performance up +0.60% following solid PMI data.
Oil prices have been trading in a narrow range and are off their intraday lows to be down slightly on the day. WTI is down 0.1% to $68.18/bbl after a low of $67.91 and Brent is 0.1% lower at $71.93/bbl after falling to $71.68. The stronger US dollar continued to pressure crude (USD BBDXY +0.1%) offsetting mild optimism from China’s manufacturing PMI.
Cold weather in Europe has increased heating demand boosting natural gas prices, but also distillate which includes heating oil.
US industry-based inventory data is out later today. Crude stocks have been declining but products rising. The official EIA figures are on Wednesday.
The focus of the week will be Thursday’s OPEC+ meeting, where it seems likely that supply increases will be pushed out into Q1, and Friday’s US payrolls report.
Later the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
Gold traded in a very narrow range over night in a week that could determine the outcome of the last meeting for the year for the Federal Reserve on December 19.
Gold started the US trading day at $2,643.13, headed lower to $2,622 before finishing at $2,639.
It opened slightly firmer in Asia’s trading morning.
Gold markets are watching for indications from the US data as to whether the Federal Reserve will cut rates at it’s December meeting, a move that should benefit gold.
Yesterday’s announcement that Australia’s biggest gold miner, Northern Star, was buying its rival De Grey mining for $5 billion could be the start of a round of consolidation in the gold industry.
The potential uncertainty that is emanating from the White House and incoming President’s policies has driven investors to gold thereby giving the bigger mining companies the cashflow to take out their rivals.
Central Banks and Hedge funds are among the investors that are adding to their gold allocations, with the latter holding the biggest long positions since early November.
Korea’s MoM CPI declined -0.3% and y/y printed at +1.5%.
The y/y release was up on October, but missed expectations of +1.7%.
Inflation remains below the BOK target of 2%.
Following on from back to back rate cuts taking rates to 3.0%, the inflation print points to the challenges for the economy ahead.
The market at present is now pricing in -86bps of cuts over the next 12 months, which could indicate a more bearish outlook for Asia in general, not just for Korea.
At the most recent BOK meeting, they revised their 2025 inflation outlook to +1.9%.
Today’s print indicates the challenges meeting that +1.9% forecast and could be the start of further revisions downward.
Today’s CPI release in Korea sees inflation remaining below the BOK’s 2% target indicating the need for further rate cuts in 2025.
There may however be signs that inflation is stabilizing when looking at the release further.
CPI less energy and food increased +1.9% y/y whilst a commonly followed cost of living index rose from +1.2% in October to +1.6%.
It may be too soon to forecast that inflation is stabilizing but if it is, it may challenge the -88bps of rate cuts the market has priced over a in at present over a 1-year time horizon.
An additional challenge for the bond market in 2025 is likely to come from the politicians where it seems that the opposition is opposing the KRW677 trillion budget, placing pressure on the current government.
The budget proposed is a 3% increase in expenditure and likely to be funded via the bond market if approved.
If signs of inflation stabilising are met with new budget approval, the usually flat Korean 3s10s curve has the potential to steepen in 2025.
The PBOC’s Governor Pan was speaking at a financial forum on Monday where he reiterated the Central Bank’s commitment to supporting the economy.
The PBOC will “adhere to an accommodative monetary policy stand and orientation” Pan told the forum.
The Governor reiterated that the Central Bank will ‘step up counter-cyclical policy adjustments’ and that the ‘PBOC will also use various tools to keep liquidity ample and lower borrowing cost for companies and resident.’
Earlier in the year there was a belief that the authorities were adamant that the 10-year government bond yield should not be allowed to trade lower than 2.15%.
Today as the 10-year breaches 2.00%, the Governor’s comments may be pointing to much lower yields in China over the coming years.
The RBI’s bold growth target may be under threat as India’s data continues to moderate.
India’s HSBC Manufacturing PMI for November release today at 56.5 represents a material decline from last month’s 57.5 and significantly lower than March’s high of 59.1.
Output declined to 59.1 from 60.4
New orders have fallen from the prior month.
Whilst this data point in itself does not point to a rate cut, there is evidence that data is softening and could bring cuts on the table in 2025.
USD/CNH hit fresh YTD highs in early trade, getting to 7.3148, but we sit lower now, last close to 7.3000. This is still 0.20% weaker in CNH terms for the session so far. Spot USD/CNY has also risen, the pair last above 7.2900, fresh highs back to Nov 2023.
There didn't appear to be a fresh catalyst for today's yuan weakness. The fixing error widened and the actual fix held sub 7.2000. Recent tariff threats from incoming President Trump, along with depressed onshore yields (although we have seen a slight uptick today) appears to be weighing on sentiment still.
Local equities are close to flat, despite chip restrictions from the US, which were less harsh than feared.
Spot USD/KRW has fared slightly better. We are close to unchanged, last near 1404. The won is also outperforming a firmer USD/JPY backdrop. The local equity backdrop is quite strong, the Kospi up 1.70%, amid broader tech/chip gains. Offshore investors bought +$392.5mn of local shares so far today, a healthy inflow backdrop. Caution around fresh longs above 1400 could have also been tempered by earlier headlines around FinMin/NPS discussing the pension funds hedging.
Spot USD/TWD has pushed higher, the pair last making fresh highs of 32.65/70, amid broader USD gains. The better equity backdrop not helping to offset at this stage.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
03/12/2024
0700/0200
*
TR
Turkey CPI
03/12/2024
0730/0830
***
CH
CPI
03/12/2024
0800/0900
EU
ECB's Cipollone at GeoEconomy Talk
03/12/2024
1000/1000
**
GB
Gilt Outright Auction Result
03/12/2024
-
***
US
Domestic-Made Vehicle Sales
03/12/2024
1355/0855
**
US
Redbook Retail Sales Index
03/12/2024
1500/1000
***
US
JOLTS jobs opening level
03/12/2024
1500/1000
***
US
JOLTS quits Rate
03/12/2024
1630/1130
*
US
US Treasury Auction Result for Cash Management Bill
03/12/2024
1735/1235
US
Fed Governor Adriana Kugler
03/12/2024
1830/1330
US
Chicago Fed's Austan Goolsbee
03/12/2024
2045/1545
US
Chicago Fed's Austan Goolsbee
04/12/2024
2200/0900
*
AU
S&P Global Final Australia Services PMI
04/12/2024
2200/0900
**
AU
S&P Global Final Australia Composite PMI
04/12/2024
0030/1130
***
AU
Quarterly GDP
04/12/2024
0030/0930
**
JP
S&P Global Final Japan Services PMI
04/12/2024
0030/0930
**
JP
S&P Global Final Japan Composite PMI
04/12/2024
0145/0945
**
CN
S&P Global Final China Services PMI
04/12/2024
0145/0945
**
CN
S&P Global Final China Composite PMI
04/12/2024
0815/0915
**
ES
S&P Global Services PMI (f)
04/12/2024
0815/0915
**
ES
S&P Global Composite PMI (final)
04/12/2024
0845/0945
**
IT
S&P Global Services PMI (f)
04/12/2024
0845/0945
**
IT
S&P Global Composite PMI (final)
04/12/2024
0850/0950
**
FR
S&P Global Services PMI (f)
04/12/2024
0850/0950
**
FR
S&P Global Composite PMI (final)
04/12/2024
0855/0955
**
DE
S&P Global Services PMI (f)
04/12/2024
0855/0955
**
DE
S&P Global Composite PMI (final)
04/12/2024
0900/1000
**
EU
S&P Global Services PMI (f)
04/12/2024
0900/1000
**
EU
S&P Global Composite PMI (final)
04/12/2024
0900/1000
EU
ECB's Cipollone speech on behavioural financial regulations
04/12/2024
0900/0900
GB
BOE's Bailey keynote interview at the FT Boardroom
04/12/2024
0930/0930
**
GB
S&P Global Services PMI (Final)
04/12/2024
0930/0930
***
GB
S&P Global/ CIPS UK Final Composite PMI
04/12/2024
1000/1100
**
EU
PPI
04/12/2024
1000/1000
**
GB
Gilt Outright Auction Result
04/12/2024
1200/0700
**
US
MBA Weekly Applications Index
04/12/2024
1315/0815
***
US
ADP Employment Report
04/12/2024
1330/1430
EU
ECB's Lagarde statement at ECON hearing
04/12/2024
1345/0845
US
St. Louis Fed's Alberto Musalem
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