The Overnight Report: China Out Of Favour

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The Australian share market is due for a negative start on Wednesday morning as US equities halted their post-election rally and with China-related assets remaining out of favour.

US bond yields firmed with the yield on the US 10yr Treasury bond surging 10.4bp to 4.43%. Oil prices recovered with WTI futures up 0.5%, trading at USD68.3/bbl. Gold fell -0.7% to USD2,600.5/oz.

Australia’s largest lender CommBank ((CBA)), also the largest index constituent, has reported a quarterly profit in line with the previous corresponding quarter and up about 5%  on the average profit over the previous two quarters.

Building materials company James Hardie ((JHX)) has posted a -23% drop in net profit, citing a “challenging demand environment” for its products, particularly in Asia and Europe.

Also: money markets are now fully priced for an Australian interest rate cut in August 2025, having yet again delayed the timing of the first easing by the RBA.

By Chris Weston, Head of Research, Pepperstone

Good morning.

USD strength has been the clear theme flowing through broad markets on the day, with EURUSD and GBPUSD getting real attention, while USDMXN has also attracted interest as we see longs push the spot rate towards 21.0.

Whether the USD flows are Trump 2.0 related is debatable, as it’s the US bond market that has driven the USD to the best levels since July, with all maturities through the US Treasury curve higher (in yield) on the day.

It takes a brave soul to bet against the USD trend at present.

Gold trends lower but holds big levels

Higher US Treasury yields, and a strong USD may be weighing again on gold, but so too is positioning, with the market still heavily long of the yellow metal.

Technicals matter to positioning, as so many of the big hitters are guided by trend and momentum, and if the short-term trend is lower then the rules-based funds will first reduce longs, before eventually flipping to outright shorts.

The set-up in gold looks heavy, but for now the bulls are defending the 10 Oct swing low of US$2601.78/oz, but a close through here may result in accelerated selling. Gold has lost form, and rallies are likely to be sold.

US CPI set to influence December Fed meeting pricing

We look ahead to US CPI in the session ahead and traders will be running the scenarios on how US rates and by extension the USD, gold and equity could fare on an upside/downside inflation surprise.

The consensus is for a 0.3% m/m increase in core inflation, which would result in the year-on-year clip remaining unchanged at 3.3%, while headline inflation is expected to lift 20bp to 2.6% y/y.

Simplistically, a core CPI print that rounds up to 0.4% m/m will likely see US interest rate swaps imply a December -25bp cut at 30% (currently 46%), which would promote a further USD rally.

Conversely, a core CPI print that rounds down to 0.2% m/m may see a -25bp cut implied at 55-60% and lift risky parts of the market (equity higher, USD lower).

The potential influence from Trump’s pick of US Treasury Secretary

Another factor that is getting increasing airtime is Trump’s potential pick of US Treasury Secretary.

With John Paulson pulling himself out of contention, the prospect of Scott Bessent or Howard Lutnick getting the gig increase an outcome which will likely be known by the end of the month.

Scott Bessent is seen as the front-runner, and he has some strong views on the Fed and Jay Powell and has recently opined of a desire to create a shadow Fed Chair role, essentially, reducing the relevance of Jay Powell in the 12 months before his term expires in May 2026.  

Markets do not like government involvement in monetary policy one bit, and any sign of reduced independence would likely see a higher risk premium priced across markets and increased volatility one to monitor.

Asia equity markets eyeing downside on open.

On the equity front, we look for a weaker open in Asia, with the ASX200 eyed -0.9% lower.

The leads from the US aren’t terrible where at an index level, the S&P500 rallied well off session lows of 5960 and now hovers just below the flatline.

Digging into the sector leads, once again it’s the China-related plays that have been shunned, and we see the S&P500 materials under pressure.

Tech has held up well, with Nvidia +2.1% and Microsoft +1.3%.

On the calendar today:

-New Zealand Sept Net migration

-Australia 3Q wage price index

-Japan Oct PPI

-Eurozone Industrial Production

-US Oct CPI

-Life360 ((360)) 3Q24 earnings

-Aristocrat Leisure ((ALL)) earnings report

-Beach Energy ((BPT)) AGM

-CommBank ((CBA)) Qtrly Report

-Endeavour Group ((EDV)) AGM

-Hotel Property Investments ((HPI)) AGM

-Insignia Financial ((IFL)) investor briefing

-James Hardie ((JHX)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Wilson Asset Management (WAM) eyes potential takeover of Platinum Asset Management ((PTM)) and has requested access to Platinum’s financial data

-Yancoal, Stanmore Coal, and Peabody Energy are all competing to acquire Anglo American’s steel making coal assets

-United Petroleum Group is speculated to be considering a takeover bid for Retail Food Group ((RFG))

-ASIC sues Cbus, alleging 10,000 members faced -$20m losses from insurance delays exceeding 90 days and reporting failures

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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