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US yields edged higher, as the Fed's Daly suggested their is no urgency to cut rates. Still, this unwound only some of Wednesday's yield dip. The USD was mostly lower, with yen and NZD outperforming.
Known BoJ board member dove Nakamura gave dovish remarks around further policy adjustment, but this afternoon stated he wasn't against hikes.
South Korean markets remain on watchpoint. The opposition leader is pushing for an impeachment vote of President Yoon this Saturday.
Looking ahead, the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
Bonds latched on to comments from Mary Daley this morning suggesting caution on her decision on rates and sold off during the day today, pushing yields higher.
Ahead of tonight’s US Initial Jobless Claims and Continuing Claims, both of which are considered a pre-cursor to the NFP, yields have drifted +0.5-1.5bp higher across the curve with intermediates the underperformer.
US 2YR 4.138% (+0.8bp),US 5YR 4.081% (+1.2bp),US 10YR 4.192% (+1.0bp).
US10YR Mar 25 future is off -03 to 111-04.
SOFR and Treasury options flow included decent two-way positioning in calls and puts Wednesday as underlying futures continued to climb higher after this morning's lower than expected ISM services data. Projected rate cuts into early 2025 continued to gain, current levels vs. this morning's (*) as follows: Dec'24 cumulative -19.4bp , Jan'25 -25.2bp, Mar'25 -40.4bp, May'25 -50.9bp.
JGB futures are weaker, -5 compared to settlement levels, but off the session’s worst levels.
BOJ board member Nakamura stated that he is personally not confident about the sustainability of wage growth, while also noting inflation is at risk of missing the 2% target from fiscal 2025 onwards (per RTRS).
Nakamura also stated that his growth forecast is below the board median due to a chance consumers may hold off spending and capex could be delayed. Further adjustments to easy policy settings should be done gradually, Nakamura stated.
While it is known that Nakamura leans dovish, the short-end JGBs managed to slightly richen after his remarks.
Cash US tsys are ~1bp cheaper in today’s Asia-Pac session. Today's US calendar will see Challenger Job Cuts, Trade Balance and Jobless Claims data. Fed's Barkin will also speak on the economic outlook.
Cash JGBs are flat to 1bp richer across benchmarks beyond the 1-year and out to the 30-year. The benchmark 30-year yield is 0.2bp higher at 2.292% after today’s auction delivered solid results.
Swap rates are 1-2bps lower out to the 10-year and 2-5bps higher beyond. Swap spreads are tighter out to the 7-year and wider beyond.
Tomorrow, the local calendar will see Cash Earnings, Household Spending, and the Coincident and Leading Indices.
Last week saw offshore investors continue to sell local stocks. This was the second straight weekly outflow and comes after a strong run of inflows going back to the last week of September. Price action in terms of Japan stocks was weaker through to end Nov, but has improved since the start of Dec.
Offshore investors were modest buyers of local bonds, but this only partially reversed the prior week's outflow. The trend on such flows has been mixed in recent months.
In terms of outbound flows from Japan, we saw local investors buying overseas bonds. This more than offset the prior's week net selling. Still, the trend on such flows has been to sell, with higher US yields crimping global bond returns in recent months.
Local investors sold offshore equities for the second straight week.
ACGBs (YM +2.0 & XM +2.5) are richer but well off the Sydney session’s best levels.
Outside of the previously outlined household spending and trade balance data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s data-induced rally. The US calendar today will see Challenger Job Cuts, Trade Balance and Jobless Claims data. Fed's Barkin will also speak on the economic outlook.
Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +5bps.
Swap rates are 2-3bps lower.
The bills strip has twist-flattened, with pricing -1 to +3.
RBA-dated OIS pricing is 1-3bps softer across 2025 meetings. A 25bp rate cut is still not fully priced until May. Notably, market expectations for the May meeting have softened by around 25bps over the past two weeks.
Tomorrow, the local calendar will see Foreign Reserves data alongside AOFM’s planned sale of A$800mn of the 3.75% 21 April 2037 bond.
RBA-dated OIS pricing eased by 3-7bps across 2025 meetings today, extending the downward momentum following yesterday’s weak GDP print.
A 25bps rate cut is now fully priced for April, signaling increased market confidence in an earlier start to the easing cycle.
Expectations for the September meeting have softened by approximately 40bps over the past two weeks. In mid-November, a full 25bps cut wasn’t expected until August, underscoring a significant shift toward earlier rate cuts.
Despite the broader repricing, the likelihood of a December rate cut remains low, with the market assigning only a 5% probability.
Q3 productivity fell 0.4% q/q to be down 0.7% y/y after -0.9% q/q and +1.1% y/y, consistent with the RBA’s November forecast of -1% y/y in Q4 2024. Governor Bullock has said that the focus shouldn’t be on each individual read but the medium-term outlook, which she remains optimistic about. However, the return to the long-term growth rate of around 1% continues to be delayed and is now unlikely until H2 2025.
The Board noted in its November minutes that a greater slowdown in wages growth would be needed for inflation to return to target if “productivity growth does not increase as assumed”. It projects productivity growth of 1.1% in Q4 2025 and Q4 2026.
The downward revision to the productivity outlook also resulted in the RBA’s revising down its estimate of full employment.
With Q3 GDP rising only 0.3% q/q, the 0.8% q/q increase in hours worked meant that productivity fell on the quarter. Part of the problem is the growth in the care economy and public sector, but the RBA has said that productivity in the market economy is also soft.
Q3 unit labour costs (ULC) rose 0.6% q/q to be up 4.3% y/y down from 5.5% y/y in Q2 and 6.7% in Q4 2023, but still elevated.
If hours worked trend lower before returning to average by end-2025, then productivity growth should improve over the coming quarters. ULC growth would slow to around 1% before rising to around 2.5% in 2026.
A contraction in hours worked through to mid-2025 would see a stronger productivity response based on the RBA’s November growth forecasts.
October household spending rose 0.8% m/m to be up 2.8% y/y after 0.9% y/y driven by discretionary spending on recreation and culture (+1.5% m/m). Annual growth had been trending lower since mid-2022. Growth in services expenditure is significantly above that for goods. This data is nominal but signals a solid start to Q4 consumption growth.
Services spending rose 1.5% m/m to be up 6.4% y/y, the highest since January. The ABS reported that spending on tickets for major music and sporting events to take place next year boosted expenditure. Being non-essential, discretionary spending rose 1.1% m/m in October to 3.2% y/y up from 0.3% y/y.
Goods spending was up 0.2% m/m, driven by clothing & footwear (+1.1% m/m), after declining the previous three months. It remains down 0.1% y/y, which was an improvement from September’s -1.5% y/y.
Non-discretionary expenditure increased 0.2% m/m and 2.0% y/y, similar to the previous month, driven by health and auto repairs.
The strength in household spending was broad-based across states and the nine major categories.
This ABS series will replace monthly retail sales after the June 2025 data.
The deterioration in the merchandise trade surplus appears to have stabilised. A small narrowing was expected in October but it actually widened to $5.95bn from $4.53bn as exports outpaced imports. But some of the details were soft with capital goods imports declining for the third straight month, exports weak to China and commodity export volumes generally lower.
Australia merchandise exports vs imports y/y% 3-mth ma
Source: MNI - Market News/ABS
Goods exports rose 3.6% m/m in October but are still down 9.2% y/y after -10.2% y/y. The strength was driven by other mineral fuels and non-monetary gold. Rural goods fell 0.5% m/m and 3.7% y/y after -5.9% y/y.
October commodity prices were higher on the month across the board, especially for iron ore. But higher prices weighed on export volumes with only semi-soft coal and LNG rising.
Exports to Australia’s two largest destinations remain weak with shipments to China down 21% y/y in October and to Japan -15.1% y/y, while they’re robust to less important markets such as the US, UK, Indonesia and NZ.
Australia merchandise exports to China y/y%
Source: MNI - Market News/ABS
Merchandise imports rose 0.1% m/m to be down 3.1% y/y after -2.8% m/m & -7.5% y/y in September. Both consumer and intermediate goods saw solid monthly rises of 0.8% and 1.7% respectively, while capex fell 2.1% m/m.
The increase in consumer imports was due to non-industrial transport equipment. In terms of investment, machinery & telecoms equipment were weak.
NZGBs closed with a mixed performance and a steeper curve, as the 2-year yield finished 4bps lower, while the 10-year yield rose by 3bps.
Despite today’s gains in the 2-year NZGB, the move appears to be more of a timing adjustment rather than a fundamental shift, especially as swap rates closed flat to 3bps higher, with the 2s/10s curve steepening.
Yesterday, swap rates ended flat to 5bps lower, with a steeper 2s/10s curve and significantly tighter implied swap spreads. The rally in NZ swaps reflected positive spillover from ACGBs, which strengthened following weaker-than-expected Q3 GDP data in Australia.
In contrast to swaps, the NZGB 2/10 curve exhibited a bear-flattener yesterday, with benchmark yields flat to up 3bps, indicating diverging market dynamics between swaps and government bonds.
Compared to the $-bloc, the NZGB 10-year underperformed its counterparts today, with the NZ-US and NZ-AU yield differentials closing 6bps and 3bps wider respectively.
RBNZ dated OIS pricing is flat to 5bps softer across meetings. 44bps of easing is priced for February, with a cumulative 104bps by November 2025.
Tomorrow, the local calendar is empty, with the next key release being Mfg Activity Volume on Wednesday.
G10 currencies are up against the USD, albeit modestly. The USD BBDXY index is little changed though, just under 1280.5.
Bitcoin has surged through $100k, last up over 5%, but this hasn't spilled over much elsewhere in terms of USD trends. The surge in Bitcoin follows Trump's pro-crypto pick to head up the SEC (see this BBG link).
NZD/USD is up around 0.30%, outperforming AUD. NZD/USD was last near 0.5865/70, close to session highs. Local onshore yields are ticking up, despite softer volume of building work data for Q3. We had a debt sale earlier for local bonds (NZ$500mn), which may be helping sentiment in the FX space at the margins. Offshore ownership of local bonds has been climbing in recent months (last 62%, Nov data due Dec 17).
The AUD/NZD cross is at fresh lows back to early Oct, last near 1.0960/65. The 200- day EMA and MA's are both near 1.0940 in terms of downside targets. AUD/USD is relatively steady at 0.6430/35, with better than expected household spending data not providing a positive impact.
USD/JPY saw highs of 150.78, but sits back at 150.35/40 now, around 0.15% stronger in yen terms. We heard from BoJ board member Nakamura, who had dovish remarks and cautioned around adjusting policy rates. Still, Nakamura is a known dove, so the remarks didn't have a lasting impact on yen sentiment.
In the cross asset space, US yields have ticked up, but only reversing a small part of Wednesday's fall. Fed remarks from Daly suggested no urgency to lower rates.
Looking ahead, the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
The KOSPI continued to fall today amidst ongoing political tensions, as the BOK continues to re-assure markets of their provision of liquidity.
Despite this the KOSPI was down -0.70% to be down over 2% in the last two trading sessions.
In China the major indexes were mixed with Hang Seng down -1.15%, CSI 300 -0.25% whilst Shanghai up +0.08% and Shenzhen up +0.55%.
South East Asian indices were down with Jakarta lagging down -0.45% and Malaysia down -0.04%.
Singapore was a strong performer with the FTSE Straits Times up +0.66%.
In India, the NIFTY 50 having had three days of positive returns is opening up weaker by -0.26% as traders become more balanced on the possibility of a rate cut from the RBI tomorrow.
Following a period of outflows yesterday saw strong inflows the larger economies with India and Taiwan the main beneficiaries.
South Korea: Recorded outflows of -$203m yesterday, bringing the 5-day total to -$561m. YTD flows remain positive at +$4.009bn. The 5-day average is -$112m, the 20-day average is -$154m and the 100-day average of -$151m.
Taiwan: Experienced inflows of +$915m yesterday, with total inflows of +$1,688m over the past 5 days. YTD flows are negative at -$16.402bn. The 5-day average is +$338m, the 20-day average of -$236m and the 100-day average of -$207m.
India: Saw inflows of +$1,097m as of Tuesday, with a total inflow of +$294m over the previous 5 days. YTD inflows stand at +$2.896bn. The 5-day average is +$59m, the 20-day average of -$31m and the 100-day average of -$16m.
Indonesia: Posted inflows of +$47m yesterday, bringing the 5-day total to -$76m. YTD flows remain positive at +$1.564b. The 5-day average is -$15m, the 20-day average is -$50m the 100-day average of +$17m.
Thailand: Recorded outflows of -$22m yesterday, totaling -$56m over the past 5 days. YTD flows are negative at -$3.818bn. The 5-day average is -$11m, the 20-day average of -$16m the 100-day average of -$5m.
Malaysia: Experienced outflows of -$6m yesterday, contributing to a 5-day outflow of -$395m. YTD flows stand at -$416m. The 5-day average is -$79m, the 20-day average of -$41m the 100-day average of -$5m.
Philippines: Saw outflows of -$9m yesterday, with net outflows of -$58m over the past 5 days. YTD flows are negative at -$322m. The 5-day average is -$12m, the 20-day average of -$17m the 100-day average of +$2m.
Oil prices are little changed ahead of the OPEC announcement later today. They fell sharply on Wednesday given uncertainty around the decision, but the group is widely expected to delay the reduction in output cuts again. WTI is up 0.1% to $68.60 /bbl during today’s APAC trading, close to the intraday low, and Brent is steady at $72.27/bbl. The USD index is unchanged.
Originally OPEC+ planned to reduce its previous output cuts by 180kbd from October but given lower prices and concerns over excess supply in 2025 it delayed them twice. The increase in supply is currently scheduled for the start of January but could be pushed back to the end of March now. There has been some disagreement within OPEC as a number of countries have excess capacity they want to use and others are concerned the group will lose market share.
Rising non-OPEC output is a significant reason for the delay to OPEC’s output normalisation. Bloomberg is reporting that currently the US produces over 13.5mbd compared with Saudi’s 9mbd, and this could rise under the Trump administration. Also, the strength of China’s demand is an ongoing concern.
Following OPEC’s decision, market attention will turn to US November payrolls, which are forecast to rise 215k with the unemployment rate steady at 4.1%.
Later the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
Philippines November CPI printed at +2.5% up from +2.3% in October.
CPI core rose +2.5%.
Transport -1.2% y/y vs -2.1% in Oct, Food and non-alcoholic beverages +3.4% y/y vs +2.9% previous month and Furnishing, household equipment +2.7% y/y vs +2.4% in Oct.
Inflation in national capital region +2.2% y/y vs +1.4% in Oct.
The Central Bank (“BSP”) cut rates in August and October this year and has one more meeting for 2024.
A recent BBG poll of 25 economists sawmajority expecting a further cut at the December 19 meeting.
Yesterday the BOK pledged to use a variety of measures to keep financial markets stable.
The BOK undertook to increase short term liquidity and take ‘active’ steps in currency markets as needed to ensure stability (as per press statement post emergency BOK board meeting).
Bond futures have opened strongly again today with Korea’s 10YR Future +0.25 at the open and the 3YR Future +0.05.
Bond yields are lower across the curve. 2YR 2.770% (-0.5bp); 5YR 2.627% (-0.2bp); 10YR 2.761% (-0.9b)
Looking at 1-year lows in yield, the front end is approximately 3-5bps above the 1-year lows and the 10 year has been bouncing off the 1 year low.
Over the course of the next 12 months, the Korean bond market has already priced in -83bps of cuts.
Looking at the period post GFC 2009 to pre-COVID 2020 as a normalized period for Korean monetary policy sees an average of 2.13%, roughly like what is priced in at present.
So, what could alter the course for rates?
For now, the BOK Governor has said that it is unlikely they will cut interest rates in an out of cycle meeting, playing down the impact on the broader economy.
However, the start of this current BOK easing cycle came due to (among other things) concerns for a slowing consumer and this latest political development is likely exacerbate that trend.
What is not priced in and poses a potential risk for bond investors is a more aggressive BOK when next they meet on January 16, 2025.
CNH and KRW have lost a little ground in the first part of Thursday trade, but remain within recent ranges. Spot USD/KRW was last near 1416, up close to 0.20%. Note intra-session highs from Wednesday's session were around the 1418 level.
Earlier today we had Q3 GDP revisions for South Korea, which were unchanged. Focus remains firmly on the domestic political outlook. President Yoon has replaced the Defence Minister, while the leader of the PPP (Yoon's party) said they will aim to prevent the impeachment bill form passing. The opposition party is looking to hold the vote this Saturday.
The authorities remained on the news wires and can support all markets in terms of bonds, equities and FX. BoK Governor Rhee stated that volatility is likely to ease gradually and that bond purchases does not amount to QE.
USD/CNH has edged back above 7.2800. The CNY fixing error was slightly tighter, but is down sub 7.1900. Local equities are down slightly. Onshore state media warned against chasing growth blindly. This comes ahead of next week's economic meeting.
Spot USD/TWD is close to unchanged, last in the 32.40/45. Recent highs were at 32.67, earlier this month.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
05/12/2024
0645/0745
**
CH
Unemployment
05/12/2024
0700/0800
**
DE
Manufacturing Orders
05/12/2024
0700/0800
SE
Flash CPI
05/12/2024
0745/0845
*
FR
Industrial Production
05/12/2024
0800/0900
**
ES
Industrial Production
05/12/2024
0830/0930
**
EU
S&P Global Final Eurozone Construction PMI
05/12/2024
0930/0930
**
GB
S&P Global/CIPS Construction PMI
05/12/2024
0930/0930
GB
DMP Data
05/12/2024
1000/1100
**
EU
Retail Sales
05/12/2024
1330/0830
***
US
Jobless Claims
05/12/2024
1330/0830
**
US
Trade Balance
05/12/2024
1330/0830
**
CA
International Merchandise Trade (Trade Balance)
05/12/2024
1330/0830
**
US
WASDE Weekly Import/Export
05/12/2024
1500/1000
*
CA
Ivey PMI
05/12/2024
1530/1030
**
US
Natural Gas Stocks
05/12/2024
1630/1130
**
US
US Bill 04 Week Treasury Auction Result
05/12/2024
1630/1130
*
US
US Bill 08 Week Treasury Auction Result
05/12/2024
1700/1700
GB
BOE's Greene panellist at the FT Boardroom "global economics: what is the path to sustained growth?"
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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)
US yields edged higher, as the Fed's Daly suggested their is no urgency to cut rates. Still, this unwound only some of Wednesday's yield dip. The USD was mostly lower, with yen and NZD outperforming.
Known BoJ board member dove Nakamura gave dovish remarks around further policy adjustment, but this afternoon stated he wasn't against hikes.
South Korean markets remain on watchpoint. The opposition leader is pushing for an impeachment vote of President Yoon this Saturday.
Looking ahead, the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
Bonds latched on to comments from Mary Daley this morning suggesting caution on her decision on rates and sold off during the day today, pushing yields higher.
Ahead of tonight’s US Initial Jobless Claims and Continuing Claims, both of which are considered a pre-cursor to the NFP, yields have drifted +0.5-1.5bp higher across the curve with intermediates the underperformer.
US 2YR 4.138% (+0.8bp),US 5YR 4.081% (+1.2bp),US 10YR 4.192% (+1.0bp).
US10YR Mar 25 future is off -03 to 111-04.
SOFR and Treasury options flow included decent two-way positioning in calls and puts Wednesday as underlying futures continued to climb higher after this morning's lower than expected ISM services data. Projected rate cuts into early 2025 continued to gain, current levels vs. this morning's (*) as follows: Dec'24 cumulative -19.4bp , Jan'25 -25.2bp, Mar'25 -40.4bp, May'25 -50.9bp.
JGB futures are weaker, -5 compared to settlement levels, but off the session’s worst levels.
BOJ board member Nakamura stated that he is personally not confident about the sustainability of wage growth, while also noting inflation is at risk of missing the 2% target from fiscal 2025 onwards (per RTRS).
Nakamura also stated that his growth forecast is below the board median due to a chance consumers may hold off spending and capex could be delayed. Further adjustments to easy policy settings should be done gradually, Nakamura stated.
While it is known that Nakamura leans dovish, the short-end JGBs managed to slightly richen after his remarks.
Cash US tsys are ~1bp cheaper in today’s Asia-Pac session. Today's US calendar will see Challenger Job Cuts, Trade Balance and Jobless Claims data. Fed's Barkin will also speak on the economic outlook.
Cash JGBs are flat to 1bp richer across benchmarks beyond the 1-year and out to the 30-year. The benchmark 30-year yield is 0.2bp higher at 2.292% after today’s auction delivered solid results.
Swap rates are 1-2bps lower out to the 10-year and 2-5bps higher beyond. Swap spreads are tighter out to the 7-year and wider beyond.
Tomorrow, the local calendar will see Cash Earnings, Household Spending, and the Coincident and Leading Indices.
Last week saw offshore investors continue to sell local stocks. This was the second straight weekly outflow and comes after a strong run of inflows going back to the last week of September. Price action in terms of Japan stocks was weaker through to end Nov, but has improved since the start of Dec.
Offshore investors were modest buyers of local bonds, but this only partially reversed the prior week's outflow. The trend on such flows has been mixed in recent months.
In terms of outbound flows from Japan, we saw local investors buying overseas bonds. This more than offset the prior's week net selling. Still, the trend on such flows has been to sell, with higher US yields crimping global bond returns in recent months.
Local investors sold offshore equities for the second straight week.
ACGBs (YM +2.0 & XM +2.5) are richer but well off the Sydney session’s best levels.
Outside of the previously outlined household spending and trade balance data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s data-induced rally. The US calendar today will see Challenger Job Cuts, Trade Balance and Jobless Claims data. Fed's Barkin will also speak on the economic outlook.
Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +5bps.
Swap rates are 2-3bps lower.
The bills strip has twist-flattened, with pricing -1 to +3.
RBA-dated OIS pricing is 1-3bps softer across 2025 meetings. A 25bp rate cut is still not fully priced until May. Notably, market expectations for the May meeting have softened by around 25bps over the past two weeks.
Tomorrow, the local calendar will see Foreign Reserves data alongside AOFM’s planned sale of A$800mn of the 3.75% 21 April 2037 bond.
RBA-dated OIS pricing eased by 3-7bps across 2025 meetings today, extending the downward momentum following yesterday’s weak GDP print.
A 25bps rate cut is now fully priced for April, signaling increased market confidence in an earlier start to the easing cycle.
Expectations for the September meeting have softened by approximately 40bps over the past two weeks. In mid-November, a full 25bps cut wasn’t expected until August, underscoring a significant shift toward earlier rate cuts.
Despite the broader repricing, the likelihood of a December rate cut remains low, with the market assigning only a 5% probability.
Q3 productivity fell 0.4% q/q to be down 0.7% y/y after -0.9% q/q and +1.1% y/y, consistent with the RBA’s November forecast of -1% y/y in Q4 2024. Governor Bullock has said that the focus shouldn’t be on each individual read but the medium-term outlook, which she remains optimistic about. However, the return to the long-term growth rate of around 1% continues to be delayed and is now unlikely until H2 2025.
The Board noted in its November minutes that a greater slowdown in wages growth would be needed for inflation to return to target if “productivity growth does not increase as assumed”. It projects productivity growth of 1.1% in Q4 2025 and Q4 2026.
The downward revision to the productivity outlook also resulted in the RBA’s revising down its estimate of full employment.
With Q3 GDP rising only 0.3% q/q, the 0.8% q/q increase in hours worked meant that productivity fell on the quarter. Part of the problem is the growth in the care economy and public sector, but the RBA has said that productivity in the market economy is also soft.
Q3 unit labour costs (ULC) rose 0.6% q/q to be up 4.3% y/y down from 5.5% y/y in Q2 and 6.7% in Q4 2023, but still elevated.
If hours worked trend lower before returning to average by end-2025, then productivity growth should improve over the coming quarters. ULC growth would slow to around 1% before rising to around 2.5% in 2026.
A contraction in hours worked through to mid-2025 would see a stronger productivity response based on the RBA’s November growth forecasts.
October household spending rose 0.8% m/m to be up 2.8% y/y after 0.9% y/y driven by discretionary spending on recreation and culture (+1.5% m/m). Annual growth had been trending lower since mid-2022. Growth in services expenditure is significantly above that for goods. This data is nominal but signals a solid start to Q4 consumption growth.
Services spending rose 1.5% m/m to be up 6.4% y/y, the highest since January. The ABS reported that spending on tickets for major music and sporting events to take place next year boosted expenditure. Being non-essential, discretionary spending rose 1.1% m/m in October to 3.2% y/y up from 0.3% y/y.
Goods spending was up 0.2% m/m, driven by clothing & footwear (+1.1% m/m), after declining the previous three months. It remains down 0.1% y/y, which was an improvement from September’s -1.5% y/y.
Non-discretionary expenditure increased 0.2% m/m and 2.0% y/y, similar to the previous month, driven by health and auto repairs.
The strength in household spending was broad-based across states and the nine major categories.
This ABS series will replace monthly retail sales after the June 2025 data.
The deterioration in the merchandise trade surplus appears to have stabilised. A small narrowing was expected in October but it actually widened to $5.95bn from $4.53bn as exports outpaced imports. But some of the details were soft with capital goods imports declining for the third straight month, exports weak to China and commodity export volumes generally lower.
Australia merchandise exports vs imports y/y% 3-mth ma
Source: MNI - Market News/ABS
Goods exports rose 3.6% m/m in October but are still down 9.2% y/y after -10.2% y/y. The strength was driven by other mineral fuels and non-monetary gold. Rural goods fell 0.5% m/m and 3.7% y/y after -5.9% y/y.
October commodity prices were higher on the month across the board, especially for iron ore. But higher prices weighed on export volumes with only semi-soft coal and LNG rising.
Exports to Australia’s two largest destinations remain weak with shipments to China down 21% y/y in October and to Japan -15.1% y/y, while they’re robust to less important markets such as the US, UK, Indonesia and NZ.
Australia merchandise exports to China y/y%
Source: MNI - Market News/ABS
Merchandise imports rose 0.1% m/m to be down 3.1% y/y after -2.8% m/m & -7.5% y/y in September. Both consumer and intermediate goods saw solid monthly rises of 0.8% and 1.7% respectively, while capex fell 2.1% m/m.
The increase in consumer imports was due to non-industrial transport equipment. In terms of investment, machinery & telecoms equipment were weak.
NZGBs closed with a mixed performance and a steeper curve, as the 2-year yield finished 4bps lower, while the 10-year yield rose by 3bps.
Despite today’s gains in the 2-year NZGB, the move appears to be more of a timing adjustment rather than a fundamental shift, especially as swap rates closed flat to 3bps higher, with the 2s/10s curve steepening.
Yesterday, swap rates ended flat to 5bps lower, with a steeper 2s/10s curve and significantly tighter implied swap spreads. The rally in NZ swaps reflected positive spillover from ACGBs, which strengthened following weaker-than-expected Q3 GDP data in Australia.
In contrast to swaps, the NZGB 2/10 curve exhibited a bear-flattener yesterday, with benchmark yields flat to up 3bps, indicating diverging market dynamics between swaps and government bonds.
Compared to the $-bloc, the NZGB 10-year underperformed its counterparts today, with the NZ-US and NZ-AU yield differentials closing 6bps and 3bps wider respectively.
RBNZ dated OIS pricing is flat to 5bps softer across meetings. 44bps of easing is priced for February, with a cumulative 104bps by November 2025.
Tomorrow, the local calendar is empty, with the next key release being Mfg Activity Volume on Wednesday.
G10 currencies are up against the USD, albeit modestly. The USD BBDXY index is little changed though, just under 1280.5.
Bitcoin has surged through $100k, last up over 5%, but this hasn't spilled over much elsewhere in terms of USD trends. The surge in Bitcoin follows Trump's pro-crypto pick to head up the SEC (see this BBG link).
NZD/USD is up around 0.30%, outperforming AUD. NZD/USD was last near 0.5865/70, close to session highs. Local onshore yields are ticking up, despite softer volume of building work data for Q3. We had a debt sale earlier for local bonds (NZ$500mn), which may be helping sentiment in the FX space at the margins. Offshore ownership of local bonds has been climbing in recent months (last 62%, Nov data due Dec 17).
The AUD/NZD cross is at fresh lows back to early Oct, last near 1.0960/65. The 200- day EMA and MA's are both near 1.0940 in terms of downside targets. AUD/USD is relatively steady at 0.6430/35, with better than expected household spending data not providing a positive impact.
USD/JPY saw highs of 150.78, but sits back at 150.35/40 now, around 0.15% stronger in yen terms. We heard from BoJ board member Nakamura, who had dovish remarks and cautioned around adjusting policy rates. Still, Nakamura is a known dove, so the remarks didn't have a lasting impact on yen sentiment.
In the cross asset space, US yields have ticked up, but only reversing a small part of Wednesday's fall. Fed remarks from Daly suggested no urgency to lower rates.
Looking ahead, the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
The KOSPI continued to fall today amidst ongoing political tensions, as the BOK continues to re-assure markets of their provision of liquidity.
Despite this the KOSPI was down -0.70% to be down over 2% in the last two trading sessions.
In China the major indexes were mixed with Hang Seng down -1.15%, CSI 300 -0.25% whilst Shanghai up +0.08% and Shenzhen up +0.55%.
South East Asian indices were down with Jakarta lagging down -0.45% and Malaysia down -0.04%.
Singapore was a strong performer with the FTSE Straits Times up +0.66%.
In India, the NIFTY 50 having had three days of positive returns is opening up weaker by -0.26% as traders become more balanced on the possibility of a rate cut from the RBI tomorrow.
Following a period of outflows yesterday saw strong inflows the larger economies with India and Taiwan the main beneficiaries.
South Korea: Recorded outflows of -$203m yesterday, bringing the 5-day total to -$561m. YTD flows remain positive at +$4.009bn. The 5-day average is -$112m, the 20-day average is -$154m and the 100-day average of -$151m.
Taiwan: Experienced inflows of +$915m yesterday, with total inflows of +$1,688m over the past 5 days. YTD flows are negative at -$16.402bn. The 5-day average is +$338m, the 20-day average of -$236m and the 100-day average of -$207m.
India: Saw inflows of +$1,097m as of Tuesday, with a total inflow of +$294m over the previous 5 days. YTD inflows stand at +$2.896bn. The 5-day average is +$59m, the 20-day average of -$31m and the 100-day average of -$16m.
Indonesia: Posted inflows of +$47m yesterday, bringing the 5-day total to -$76m. YTD flows remain positive at +$1.564b. The 5-day average is -$15m, the 20-day average is -$50m the 100-day average of +$17m.
Thailand: Recorded outflows of -$22m yesterday, totaling -$56m over the past 5 days. YTD flows are negative at -$3.818bn. The 5-day average is -$11m, the 20-day average of -$16m the 100-day average of -$5m.
Malaysia: Experienced outflows of -$6m yesterday, contributing to a 5-day outflow of -$395m. YTD flows stand at -$416m. The 5-day average is -$79m, the 20-day average of -$41m the 100-day average of -$5m.
Philippines: Saw outflows of -$9m yesterday, with net outflows of -$58m over the past 5 days. YTD flows are negative at -$322m. The 5-day average is -$12m, the 20-day average of -$17m the 100-day average of +$2m.
Oil prices are little changed ahead of the OPEC announcement later today. They fell sharply on Wednesday given uncertainty around the decision, but the group is widely expected to delay the reduction in output cuts again. WTI is up 0.1% to $68.60 /bbl during today’s APAC trading, close to the intraday low, and Brent is steady at $72.27/bbl. The USD index is unchanged.
Originally OPEC+ planned to reduce its previous output cuts by 180kbd from October but given lower prices and concerns over excess supply in 2025 it delayed them twice. The increase in supply is currently scheduled for the start of January but could be pushed back to the end of March now. There has been some disagreement within OPEC as a number of countries have excess capacity they want to use and others are concerned the group will lose market share.
Rising non-OPEC output is a significant reason for the delay to OPEC’s output normalisation. Bloomberg is reporting that currently the US produces over 13.5mbd compared with Saudi’s 9mbd, and this could rise under the Trump administration. Also, the strength of China’s demand is an ongoing concern.
Following OPEC’s decision, market attention will turn to US November payrolls, which are forecast to rise 215k with the unemployment rate steady at 4.1%.
Later the Fed’s Barkin speaks and US November Challenger job cuts, October trade and jobless claims print. Canadian November PMI, German October factory orders and euro area retail sales are also released. BoE’s Greene speaks.
Philippines November CPI printed at +2.5% up from +2.3% in October.
CPI core rose +2.5%.
Transport -1.2% y/y vs -2.1% in Oct, Food and non-alcoholic beverages +3.4% y/y vs +2.9% previous month and Furnishing, household equipment +2.7% y/y vs +2.4% in Oct.
Inflation in national capital region +2.2% y/y vs +1.4% in Oct.
The Central Bank (“BSP”) cut rates in August and October this year and has one more meeting for 2024.
A recent BBG poll of 25 economists sawmajority expecting a further cut at the December 19 meeting.
Yesterday the BOK pledged to use a variety of measures to keep financial markets stable.
The BOK undertook to increase short term liquidity and take ‘active’ steps in currency markets as needed to ensure stability (as per press statement post emergency BOK board meeting).
Bond futures have opened strongly again today with Korea’s 10YR Future +0.25 at the open and the 3YR Future +0.05.
Bond yields are lower across the curve. 2YR 2.770% (-0.5bp); 5YR 2.627% (-0.2bp); 10YR 2.761% (-0.9b)
Looking at 1-year lows in yield, the front end is approximately 3-5bps above the 1-year lows and the 10 year has been bouncing off the 1 year low.
Over the course of the next 12 months, the Korean bond market has already priced in -83bps of cuts.
Looking at the period post GFC 2009 to pre-COVID 2020 as a normalized period for Korean monetary policy sees an average of 2.13%, roughly like what is priced in at present.
So, what could alter the course for rates?
For now, the BOK Governor has said that it is unlikely they will cut interest rates in an out of cycle meeting, playing down the impact on the broader economy.
However, the start of this current BOK easing cycle came due to (among other things) concerns for a slowing consumer and this latest political development is likely exacerbate that trend.
What is not priced in and poses a potential risk for bond investors is a more aggressive BOK when next they meet on January 16, 2025.
CNH and KRW have lost a little ground in the first part of Thursday trade, but remain within recent ranges. Spot USD/KRW was last near 1416, up close to 0.20%. Note intra-session highs from Wednesday's session were around the 1418 level.
Earlier today we had Q3 GDP revisions for South Korea, which were unchanged. Focus remains firmly on the domestic political outlook. President Yoon has replaced the Defence Minister, while the leader of the PPP (Yoon's party) said they will aim to prevent the impeachment bill form passing. The opposition party is looking to hold the vote this Saturday.
The authorities remained on the news wires and can support all markets in terms of bonds, equities and FX. BoK Governor Rhee stated that volatility is likely to ease gradually and that bond purchases does not amount to QE.
USD/CNH has edged back above 7.2800. The CNY fixing error was slightly tighter, but is down sub 7.1900. Local equities are down slightly. Onshore state media warned against chasing growth blindly. This comes ahead of next week's economic meeting.
Spot USD/TWD is close to unchanged, last in the 32.40/45. Recent highs were at 32.67, earlier this month.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
05/12/2024
0645/0745
**
CH
Unemployment
05/12/2024
0700/0800
**
DE
Manufacturing Orders
05/12/2024
0700/0800
SE
Flash CPI
05/12/2024
0745/0845
*
FR
Industrial Production
05/12/2024
0800/0900
**
ES
Industrial Production
05/12/2024
0830/0930
**
EU
S&P Global Final Eurozone Construction PMI
05/12/2024
0930/0930
**
GB
S&P Global/CIPS Construction PMI
05/12/2024
0930/0930
GB
DMP Data
05/12/2024
1000/1100
**
EU
Retail Sales
05/12/2024
1330/0830
***
US
Jobless Claims
05/12/2024
1330/0830
**
US
Trade Balance
05/12/2024
1330/0830
**
CA
International Merchandise Trade (Trade Balance)
05/12/2024
1330/0830
**
US
WASDE Weekly Import/Export
05/12/2024
1500/1000
*
CA
Ivey PMI
05/12/2024
1530/1030
**
US
Natural Gas Stocks
05/12/2024
1630/1130
**
US
US Bill 04 Week Treasury Auction Result
05/12/2024
1630/1130
*
US
US Bill 08 Week Treasury Auction Result
05/12/2024
1700/1700
GB
BOE's Greene panellist at the FT Boardroom "global economics: what is the path to sustained growth?"
05/12/2024
1715/1215
US
Richmond Fed's Tom Barkin
06/12/2024
2330/0830
**
JP
average wages (p)
06/12/2024
2330/0830
**
JP
Household spending
06/12/2024
0700/0800
**
DE
Industrial Production
06/12/2024
0700/0700
*
GB
Halifax House Price Index
06/12/2024
0745/0845
*
FR
Foreign Trade
06/12/2024
1000/1100
*
EU
Employment
06/12/2024
1000/1100
*
IT
Retail Sales
06/12/2024
1000/1100
***
EU
GDP (final)
06/12/2024
1330/0830
***
US
Employment Report
06/12/2024
1330/0830
***
CA
Labour Force Survey
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