The Overnight Report: Sayonara Rate Cuts

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US markets fell, as 'buy-the-rumour' and 'sell-the-fact' kicked in with the shutdown ended or at least deferred until round two in January.

Nasdaq and small caps took the brunt of selling pressure.

Yesterday, the ASX200 took a turn for the worse post stronger than expected September labour data.

On Friday morning, SPI futures are pointing to a big sell-off at the open, potentially as damaging as -1.7%.

Good Morning,

The ASX200 fell -46pts or -0.5% to 8753 on Thursday led by technology and property.

Materials were up boosted by lithium and gold stocks.

What happened overnight, NAB Markets Today Research

In the wake of yesterday’s labour market data showing the unemployment rate dropping back to 4.3% from September’s 4.5%, NAB removed the residual -25bps RBA cash rate cut from its central scenario.

Rounding flattered the outcome, but regardless, it supports our assessment that the September jump was not a sign of labour market deterioration. 

The RBA in its latest SoMP forecasts an unemployment rate flatlining at 4.4% with some capacity pressures remaining in the labour market across their forecast horizon. 

Yesterday’s data is consistent with that outlook and will keep the RBA concerned that domestic conditions are too tight to be consistent with inflation returning to the mid-point of the target band, hence our view change alongside, and as such provided the nail in the coffin to our prior RBA view of one further rate cut in the cycle. 

Market pricing for the RBA shifted post the data to show a maximum of -9bps of easing, in June next year, in from -15bps prior (and -18bps by next September).

There’s a whiff of ‘sell America’ back in the air this morning, last detected back in April, with US equities smartly lower led by the technology sector, Treasury yields higher and the US dollar lower.

The proximate cause of the equity and bond market sell offs appears to be further diminishing hopes of a December Fed rate cut, with market pricing falling below 50% for the first time (47%) and in from 59% the day before. 

With the shutdown over and government officials returning to work Thursday, the Bureau of Labour Statistics will soon release an economic calendar.

What we know so far is that there will be no October CPI report as data was not collected, and the same applies for the household survey regarding the unemployment rate.

October nonfarm payrolls data can be published (which White House economic adviser Kevin Hassett says will be in the next few days). The November report should be business as usual and in time for the December FOMC meeting.

There’s been plenty of Fed speak. Cleveland Fed President Beth Hammack –-previously earmarked as one of the more hawkish FOMC members and who does get a vote in 2026– said she doesn’t back any more interest-rate cuts unless the economy changes. 

She said she remains focused on price stability as the labor market softens, adding it is critical for the US central bank to reach its 2% inflation target.

“I am worried about the labor market,” Hammack said, but “we’ve got this persistent high inflation that is sticking around; when all is said and done it will be the better part of a decade” a lot of which she says is concentrated in services and not imported goods.

“If you read some of the market participant chatter, some of them are talking about, ‘well, maybe what the Fed means by its target is just below 3%, and that getting it all the way to 2% is not a priority,’” she said. “To me, getting it back to 2% is critical for our credibility, and that’s our objective”.

St Louis Fed President Alberto Musalem said the Fed’s objectives are moving in opposite directions. He reckons AI is increasing productivity and displacing workers but that the labour market will soften in orderly way and expect economy to grow at or above potential in 2026. He says the Fed needs to be cautious as rates approach neutral.

San Francisco Fed President Mary Daly said risks to labour market and inflation are close to balanced but that risks may still be slightly higher for labour market. Inflation ex-tariffs is coming down, she says, but stubbornly. She says it’s premature to say what FOMC should do in December and so has an open mind on the matter.

New York Fed President John Williams didn’t comment on monetary policy but reiterated a view that bank reserves in the US are close to reaching the level desired by the central bank.

“Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves,” Williams said Wednesday.

After reaching that level, it would be time for the Fed “to begin the process of gradual purchases of assets” to hold bank reserves at a sustained level, he added. He didn’t provide any new colour on the future composition or duration of the Fed’s balance sheet.

Data wise, UK Q3 GDP came in at 0.1% q/q, –0.1% below consensus after 0.3% q/q in Q2 and the stronger 0.7% in Q1 that was boosted by pre-tariff trade.

One negative factor that will pass was the impact of the Jaguar Land Rover outage, which saw car production fall -27% in Sep, knocking -0.17ppts off GDP in Sep. 

GDP data, is nevertheless, indicative of a pretty tepid economy that is struggling to find its feet ahead of a coming painful Budget on 26 November that seems certain to unleash further tax rises. Partly because of the Land Rover impact, expectations for a December -25bps BoE rate cut were little changed at around 85% post the data.

Last night China published October money supply and credit data, showing bank loan growth slowed sharply last month, according to our friends at Capital Economics from 6.6% y/y in September to a fresh record low of 6.3% y/y in October.

They say October’s slowdown was mostly driven by a sharp weakening in loan issuance to households, suggesting weak mortgage demand remains a major drag on credit growth. Together with a softening in government bond issuance, broad credit growth slowed for third month in a row, with growth in aggregate financing to the real economy slowing from 8.7% y/y to 8.5% y/y.

M2 Money supply growth slipped to 8.2% from 8.4% (0.1% better than expected) while M1 growth crunched to just 6.2% from 7.2% against 7.0% expected.

In equity markets, the NASDAQ and smaller cap Russell 2000 led the way down, both off -2.5%, with the S&P500 -1.8% and Dow Jones -1.7%. As well as the fall for the IT sector in the S&P500, Consumer Discretionaries are similarly weak, with only Health Care and Energy showing (small) gains. Earlier the Eurostoxx600 ended -0.6% lower and the FTSE -1.0%.

Bond markets saw the US Treasury curve bear steepening with 2s currently up 1.6bps and 10s 3.3bps. The 30-year is also just over 3bps higher, after a long bond auction which trailed by 1bps, clearing at 4.694% against the 4.684% when-issued yield. 10-year Eurozone benchmarks ended their day 3-4bps higher, AUD 10year futures showing a similar yield rise.

In FX, the boost AUD received post the labour market reports disappeared without a trace, AUD/USD down -0.2%, at 0.6529 having been as high as 0.6580, so matching the decline in CAD and barely up on the day against the NZD (latter -0.25%). 

Swiss Franc leads G10 currency gains consistent with its current pre-eminent haven status, and has been the case for much of this year EUR/USD had benefited not suffered from ‘risk-off’ episodes, currently up 0.4% at 1.1636, its best level of November to date.

JPY shows some signs of haven support, USD/JPY currently -0.3% on the day.

ANZ Bank: Commodities extract, Australian Morning Focus

Finally in commodity markets gold shows the biggest fall (USD slippage notwithstanding) down -1.2% at US$4,166 but this is after a strong run up from sub-US$4000 to above US$4,200 in recent days. 

Gold fell on concerns that soon to be released economic data will not justify further monetary easing by the Fed. US President Donald Trump signed legislation to end the longest government shutdown in history. However, it may take days or even weeks for the federal bureaucracy to fully restart and issue long awaited economic data. 

Any delays could keep Fed governors relatively cautious. Mary Daly said it’s too early to decide on a December rate cut and she’s maintaining an open mind as she awaits more data. Swaps traders trimmed their bets on a December cut to about 50% from more than 60% earlier this week. That weighed on gold, which tends to perform well in a lower interest rate environment. 

Copper steadied following a four-day run of gains amid the uncertainty around another rate cut by the US central bank. The metal has rallied more than 25% this year, buoyed by a series of disruptions at some of the world’s biggest mines. However, robust demand from manufacturing and construction sectors are also playing their part. 

Aluminium has also enjoyed strong gains in recent weeks amid concerns that supply may struggle to meet rising demand. China has played an important part in keeping the aluminium market well balanced.

However, a self-imposed cap on capacity could hinder its ability to react to changes in demand. Environmental concerns, overcapacity control and industry consolidation drove China’s decision to limit its aluminium smelter capacity to 45mt. It wasn’t expected to reach that level until 2030. 

Growth is now expected to tumble with output hitting that limit. This comes amid heightened risks to supply elsewhere. China’s investment in Indonesia is facing several challenges. There are also rising supply risks in existing operations amid mounting energy costs.

This could inhibit the market’s ability to meet stronger demand amid an improving macro backdrop. Manufacturing saw growth this year despite trade-induced concerns over economic activity. The construction sector has been supportive too as the energy transition continues to drive investment in infrastructure. 

Iron ore futures edged lower amid concerns of stronger supply. The market has been fretting about the imminent startup of the Simandou iron ore mines in Guinea. At 10% of global demand at its peak, the mine could swamp the market. Recent trade data shows that current operations are also picking up. 

Iron ore shipments from Australia including Port Hedland totalled 8.1mt in the week to 31 October, up from 7.5mt in the previous week, according to Bloomberg data. 

Crude oil prices rebounded late in the session as concerns mounted that US sanctions could offset gains in OPEC supply. The Trump administration has moved to raise the pressure on Russia to end the war in Ukraine by sanctioning Rosneft PJSC and Lukoil PJSC. The trading arm of Lukoil has already started terminating jobs with days to go before the sanctions fully kick in. 

The company also recently declared force majeure on oil shipments from its giant West Qurna 2 field in Iraq. Sentiment was weighed down earlier in the session after EIA’s weekly inventory report showed that crude oil stockpiles rose by 6.4mbbls last week, their biggest gain since July and much greater than expected. 

European gas futures extended recent losses as ample supply eased concerns of shortages. The Netherlands said that despite storage levels being below their target of 80%, the shortfall poses no threat to energy security due to ample supply. North Asia LNG prices were steady as recent losses enticed buyers into the spot market

Corporate news in Australia

-DroneShield’s ((DRO)) fell -31% after the CEO, Chair and a director sold stock worth $66.8m.

-BlueScope Steel ((BSL)) will sell its 50% stake in Tata BlueScope Steel to Tata Steel for $179m, generating a profit of $70m.

-Nufarm ((NUF)) reclassifies earnings as it readies for the sale of its seed unit for $900m.

-ASIC is suing SQM Research for allegedly misleading ratings of the collapsed Shield Master Fund.

-NextDC’s ((NXT)) executive pay plan was rejected by shareholders.

-Guzman y Gomez ((GYG)) is placing US expansion on hold until the 15 US stores match revenues in Australia.

-Rox Resources ((RXL)) launched a $200m equity raising at 35c per share.

On the calendar today:

-CH Oct Fixed Asset Investment

-CH Oct House Price Index

-CH Oct Industrial Production

-CH Oct Retail Sales

-EZ 3Q Flash GDP

-EZ 3Q Unemployment

-ACROW LIMITED ((ACF)) AGM

-ARCHTIS LIMITED ((AR9)) AGM

-COMET RIDGE LIMITED ((COI)) AGM

-CORE LITHIUM LIMITED ((CXO)) AGM

-LENDLEASE GROUP ((LLC)) AGM

-MAGNETIC RESOURCES NL ((MAU)) AGM

-NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) AGM

-SMART PARKING LIMITED ((SPZ)) AGM

-SOLVAR LIMITED ((SVR)) AGM

-TAMBORAN RESOURCES CORPORATION ((TBN)) 1Q26 Earnings/Call

-TPG TELECOM LIMITED ((TPG)) ex-div 9c

-VAULT MINERALS LIMITED ((VAU)) AGM

-VIRGIN AUSTRALIA HOLDINGS LIMITED ((VGN)) AGM

-WAGNERS HOLDING CO. LIMITED ((WGN)) 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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