The Overnight Report: Commodities (ex-Gold) Shine

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US markets fell after Fed Chair Powell threw cold water on a 'guaranteed' December rate cut, delivering a more 'hawkish' -25bps cut.

After a poor showing on the Australian market yesterday following a hot CPI print, ASX200 futures are pointing to yet another weak start.

Good Morning

Post a higher-than-expected September CPI print, the ASX200 dropped -86 points on Wednesday with banks and property stocks weighing on the index, and with materials outperforming.

What happened overnight, NAB Markets Today Research

The FOMC agreed a few hours ago to cut the Fed Funds rate target by -25bps as universally expected, in a split decision with Stephen Miran wanting to cut by -50bps and Jeffry Schmidt dissenting in favour of no change. 

The Fed agreed to end its Quantitative Tightening (QT) from December 1 and will continue to run down its Agency securities portfolio (by -US$35bn a month) instead reinvesting maturing proceeds into Treasuries.

Chair Powell later said the Fed wants to move to a shorter duration balance sheet. No great surprise to any of this, unlike in the ensuing press conference.

In opening remarks in his post-FOMC meeting press conference, Chair Powell reiterated his prior comments about there being ‘no risk free path for policy’, noting employment risks are tilted to the downside and, in the near term, inflation risk to the upside. 

Far more pertinent. Powell said a rate cut in December is “far from a foregone conclusion” and that there were some strongly differing views at today’s meeting.

This was later qualified to mean about the future rather than necessarily today’s decision, and later still by a remark that ‘There’s a sense from some: let’s pause here’. 

This is after having described today’s move as having the same risk management logic as the September cut, but that logic going forward is a ‘different thing’. He went on to say the government shut down could affect the December meeting (given the paucity of data available to them if the government stays shut).

Later in the press conference, Powell said he reckons ex-tariff inflation is close to the Fed’s 2% target and that we are seeing continuing ‘very gradual’ cooling in the labour market. The clear inference is that labour market deterioration at a somewhat faster pace that observed to date will be a key arbiter of how monetary policy evolves from here.

After limited market moves on the FOMC Statement, there were some strong reactions across all markets as Powell spoke. 2-year Treasury yields jumped from 3.52% to 3.58% and 10s to 4.055% from 4.01%. Pricing for the December 10 meeting has come in to show 17% (or 69%) chance of a -25bps cut, with a terminal rate still priced at close to 3.0% (low point on the Fed Funds futures strip is 2.935% in April 2027, versus 2.855% this time yesterday).

In FX, the USD (DXY) index rose 0.5%, losses led by the CHF (currently down -1% on the day) and GBP (-0.9% -1%) GBP (-0.9%, more than half of that post-Fed) and EUR down -0.5% post-Powell. AUD/USD was a touch above 0.6600 running into the Fed and has fallen to 0.6570 as I’m typing – so 10 pips or so below its pre-CPI level (see below).

In US equities, the S&P500 slumped by -0.8% as Powell started speaking, but had clawed back over half of the losses ahead of earnings results from Alphabet, Microsoft and Meta (see below). 

Earlier Wednesday, European stocks finished mixed (Eurostoxx600 barely changed) while GBP slippage, boosting overseas earnings, seems to be helping UK market outperformance with FTSE up 0.6%.

The other central bank action last night was the Bank of Canada, who cut by -25bps as expected by a majority of analysts, and signaled rates are now at ‘about the right level.’ 

Governor Macklem, post meeting, said opposing pressures are likely to keep inflation close to 2%, but if the outlook changes, they are prepared to respond. He said weekend events are a reminder that trade policy is unpredictable and that the Canadian economy is going through a ‘structural transition’.

Locally, yesterday’s Q3 CPI data showing Trimmed Mean inflation lifting to 1.0% confirmed our read from the partial indicators that inflation was materially above the RBA’s August expectation.

Stronger inflation in the quarter was broad based, evidenced by the share of the CPI increasing more than 1ppt above the 2.5% midpoint rose from 41% to 56%, the share running more than -1ppt below fell from 33% to 15%. 

As a result, NAB continues to expect the RBA will be on an extended pause, penciling in a cut in May 2026 as it seeks to gain more understanding of both labour market and inflation dynamics. 

After the November meeting and SoMP forecast update on 4 November, employment on 12 November and GDP on 3 December are the key data releases ahead of the December meeting. They would have to particularly weak to put a cut back in play this year.

In FX prior to the reaction to the Fed and chair Powell’s post meeting press conference, AUD was the standout G10 winner during our time zone post CPI.

Just prior to that, the JPY got a boost from a tweet from US Treasury secretary Scott Bessent following his meeting with his Japanese counterpart Satsuki Katayama, in which he sad “I am encouraged by her deep understanding of how Abenomics has moved from a purely reflationary policy to a program that must balance growth and inflationary concerns for the citizens of Japan. The Government’s willingness to allow the Bank of Japan policy space will be key to anchoring inflation expectations and avoiding excess exchange rate volatility”. 

That’s as pointed as it gets regarding telling another sovereign state how it should manage its monetary policy, with a clear insinuation Bessent would like to see a stronger Yen, with BoJ policy evidently seen as a key driver for this. It will as a result be fascinating to see the tone struck by BoJ Governor Ueda post today’s almost certainly unchanged policy decision.

In commodities, higher US (real) yields and a firmer USD are both headwinds for gold which has lost another -US$5 or so to US $3,948, in contrast to most other commodities which are up (crude benchmarks by 30-50 cents, base metals up led by a 1.3% rise for copper and iron ore futures 1% higher).

US tech sector earnings are out with Alphabet printing 3Q revenue (ex TAC) of US$87.47bn against a street consensus for US$85.11bn. It has lifted its estimated full-year capex spend to US$91-US$93bn against US$85bn expected. Stock is up almost 8% after-hours. 

Microsoft’s Q1 revenue is US$77.67bn against a US$75.55bn estimate but its stock is currently down -4%. Meta has just announced a -US$15.9bn non-cash charge on its tax bill, and its shares have reportedly slumped -8.7% on the back of that news. Pre these earnings, the NASDAQ had closed up 0.55% and the S&P500 flat.

Danske Bank, Fed Review: Hawkish Cut extract

Ahead of the meeting, we expected Powell to avoid pre-committing to a December rate cut, but his clear pushback against the market pricing was more hawkish than even we anticipated.

Powell emphasized that ‘another cut in December is far from assured’ amid the committee’s ‘strongly differing views’ about the future, and that ‘there is a growing chorus of feeling we should maybe wait a cycle’. 

He highlighted that despite the shutdown, available data does not signal significant further cooling in labour markets.

After the September meeting, we pointed out the ‘dots’ signalled an almost even split between participants expecting cuts in both Oct & Dec, and those expecting only 0-1 cuts.

We argued markets underappreciated FOMC’s willingness to pause, as ahead of this meeting, markets were pricing more than 90% likelihood for another cut in December. 

We stick to our call and expect a pause in December followed by the next cut in January. We still think the Fed is the best served by a more gradual approach towards further easing.

Markets were well prepared for the announcement to end QT. We anticipated the Fed would choose a less aggressive option of only ending the balance sheet runoff for US Treasuries. Instead, it opted to also ‘neutralize’ the runoff of mortgage-backed securities (MBS) by reinvesting the maturing principal payments to T-bills from December 1.

Over the past few months, the pace of QT has been around -US$5bn per month for Treasury securities and around -US$16-17bn per month for MBS. Despite the seemingly ‘dovish’ balance sheet decision, UST yields moved higher already before the hawkish remarks in the press conference.

This likely reflected Jeffrey Schmid’s surprising dissent in favour of holding rates steady at this meeting. Less surprisingly, Stephen Miran also dissented, but in favour of a -50bp cut.

Powell flagged that eventually the Fed will look to start adding to reserve balances by increasing the size of its balance sheet again but did not yet speculate on the timing.

The Fed did not perform an additional cut to the IORB rate, as speculated by some ahead of the meeting. This would have been an even more aggressive measure to ease the upward pressure seen in repo rates over past weeks and remains a possibility for future meetings.  

Corporate news in Australia

-Rio Tinto ((RIO)) is planning a multibillion-dollar sale of non-core assets to refocus on core minerals.

-Nine Entertainment’s ((NEC)) talkback stations, including 2GB and 3AW, are part of a strategic review with buyer interest.

-TA Associates has rejoined talks to buy Perpetual Wealth Management ((L1G)) with Oaktree still part of the mix.

-Pepper Money ((PPM)) is nearing the acquisition of Westpac’s ((WBC)) $30bn-plus RAMS loan book after securing exclusivity.

-Aeris Resources ((AIS)) is raising $85m to repay WH Soul Pattinson’s ((SOL)) debt and fund exploration.

-Pay.com.au is raising $25m at a $600m valuation ahead of listing on the ASX in preparation of US expansion.

-Saluda Medical is commencing a US$150m IPO aiming for a valuation between $750-$850m by December.

On the calendar today:

-NZ ANZ Business Outlook Survey

-AU 3Q Trade Price Indexes

-JP BOJ MonPol Decision

-EZ 3Q Flash GDP

-EZ ECB MonPol Decision

-EZ Sept Unemployment Rate

-4DMEDICAL LIMITED ((4DX)) AGM

-ACROW LIMITED ((ACF)) ex-div 2.95c (100%)

-ARAFURA RARE EARTHS LIMITED ((ARU)) AGM

-AUTOSPORTS GROUP LIMITED ((ASG)) ex-div 4.50c (100%)

-AVA RISK GROUP LIMITED ((AVA)) AGM

-BETR ENTERTAINMENT LIMITED ((BBT)) 1Q26 Update/Investor Call

-CUSCAL LIMITED ((CCL)) AGM

-CHALLENGER LIMITED ((CGF)) AGM

-COLES GROUP LIMITED ((COL)) 1Q26 Update

-COSOL LIMITED ((COS)) AGM

-CHARTER HALL RETAIL REIT ((CQR)) AGM

-CORONADO GLOBAL RESOURCES INC ((CRN)) 3Q25 Update/Investor Call

-CURVEBEAM AI LIMITED ((CVB)) Sept Quarter Update

-CIVMEC LIMITED ((CVL)) AGM

-EQT HOLDINGS LIMITED ((EQT)) AGM

-HEALIUS LIMITED ((HLS)) AGM

-HARMONEY CORP LIMITED ((HMY)) 1Q26 Update/Investor Call

-IGO LIMITED ((IGO)) Sept Quarterly/Investor Call

-IMPEDIMED LIMITED ((IPD)) 1Q26 Update/Investor Call

-JB HI-FI LIMITED ((JBH)) AGM

-JAMES HARDIE INDUSTRIES PLC ((JHX)) AGM

-KELSIAN GROUP LIMITED ((KLS)) AGM

-LYNAS RARE EARTHS LIMITED ((LYC)) Sept Quarterly/Investor Call

-MINERAL RESOURCES LIMITED ((MIN)) Sept Quarterly

-PERPETUAL CREDIT INCOME TRUST ((PCI)) ex-div 0.6c

-PIONEER CREDIT LIMITED ((PNC)) AGM

-PETER WARREN AUTOMOTIVE HOLDINGS LIMITED ((PWR)) AGM

-SOMNOMED LIMITED ((SOM)) 1Q26 Update

-SUNCORP GROUP LIMITED ((SUN)) Investor Briefing

-UNIVERSAL STORE HOLDINGS LIMITED ((UNI)) AGM

-WESFARMERS LIMITED ((WES)) AGM

-WHITEHAVEN COAL LIMITED ((WHC)) AGM

-WOOLWORTHS GROUP LIMITED ((WOW)) AGM

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

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.

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