The Overnight Report: February Rate Hike?

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Nasdaq led the gains in US markets as technology stocks found favour again (at least in the US).

ASX200 futures are pointing to another positive start to end the week ahead of the RBA's rate decision on Tuesday.

Good Morning

Miners rallied on Thursday on the back of higher copper prices, preventing the ASX200 from having a down day.

The index closed up 0.1% to 8602.80.

What happened overnight, NAB Markets Today Research extract

It was another relatively quiet day for data and news flow.

US labour market indicators were mixed. Initial jobless claims plunged -27k to 191k, their lowest in 3 years, though seasonal adjustment issues in Thanksgiving week are enough reason to discount any signal from that and look for a rebound next week.

Continuing claims have stabilised since mid-year, suggesting job finding prospects for those laid off have not deteriorated noticeably in recent months, but that says little about the prospects of long-term unemployed, job leavers, and labour market entrants.

Challenger job cuts fell back sharply from their October surge, but still remain 24% higher than November last year. 

Key for the outlook is how all this mixed picture translates through into spare capacity, given shifts to both labour supply and labour demand. With October data missing and November’s payroll’s report, ordinarily tonight, delayed, the FOMC will have to make do with the far from complete picture at week’s FOMC meeting.

December pricing was little changed overnight at -23bp, while end 2026 pricing was pared a little to -85bp from -91bp.

US 10yr yields are 4bp higher at 4.11%, with a push higher in yields reflected across the curve, 2yr yields are 4bp higher at 3.53%. European 10yr yields were generally around 3bp higher, but gilts outperformed, with 10yr yields down -1bp to 4.43% and a -3bp drop in 30yr yields.

Japanese 10yr yields rose 4bp to 1.93%. BoJ Governor Ueda said Thursday officials at the central bank are working to narrow a range for the neutral rate and that “the final decision on how high to raise the nominal interest rate appropriately depends on this factor, so I must mention there is some uncertainty.”

Ueda did reiterate that current monetary conditions in Japan are still accommodative.

Locally, October consumer spending data was strong, up some 1.3% mom (0.6% expected). Wednesday’s Q3 GDP data showed consumer momentum was sustained in the third quarter, and yesterday’s data set up a strong Q4 outcome.

There are now 11bp of tightening priced by May, from 5bp on Wednesday. Also getting some interest was an article from the WSJ’s James Glynn “Big four banks test February rate hike possibility”.

With capacity utilisation high, inflation likely tracking a little stronger than the RBA forecast in 4Q, and indications of health private demand momentum, at a minimum, NAB Economics think RBA commentary is likely to take a more hawkish tone, reflecting a shift in the distribution of risks to the monetary policy outlook.

Moves were generally contained in In FX markets. The USD was little changed, up 0.1% on the DXY.

The AUD was the outperformer but only managed a 0.2% gain. After ending Wednesday at 0.6601 it has held above 66c, touching an intraday high of 0.6624 and currently sitting around 0.6612.

ANZ Bank, Australian Morning Focus, Commodities extract

Crude oil gained as prospects of a peace deal between Russia and Ukraine diminish. President Putin said some of the points in the US-backed peace plan to end the war in Ukraine were unacceptable to him. Ukrainian negotiators will have a new round of talks in Florida.

The peace plan presented to Russia and Ukraine presents the single biggest variable to the outlook for the oil market. The various potential outcomes from President Trump’s latest push to end the war could release a swing in oil supply of more than 2mb/d.

We see three possible scenarios playing out. 1) no peace deal, status quo. Russia and Ukraine continue to attack each other’s energy infrastructure. Fears of supply tightness would ultimately keep Brent crude above US$60/bbl.

However, further upside would be limited as supply outpaces demand in 2026, pushing the market into surplus.

2) no peace deal, sanction threats increase. Amid fears of losing access to US financial systems, buyers of Russian crude withdraw. This could see up to 1mb/d of oil disrupted.

3) a peace deal is reached. This would likely lead to the removal of US sanctions on Russian oil companies, freeing up the flow of Russian crude. Crude oil would come under immediate pressure, with sub-US$60/bbl likely.

This could be followed by price support from OPEC, entailing production cuts to balance the market. Prices would subsequently return above US$60/bbl.

European gas futures fell amid signs of weaker demand. Milder and windier weather are forecast for next week, dampening the need for gas for power and heating. Warmer conditions are also set to linger across the continent through mid-December.

This comes amid relatively robust supply. Exports from Norway remain elevated while deliveries of LNG are set to exceed last year’s levels. This has eased concerns about low storage levels entering the heating season. Inventory levels are currently 74%, down from the five-year seasonal average of 85%.

North Asia LNG was also lower, amid limited activity in the spot market. There has been some interest from Bangladesh and Taiwan, but buyers from major consumers have been largely absent.

Copper pulled back from its recent record high amid concerns the surge in prices had been overdone. The metal has gained more than 7% since the start of November and is up 30% from the start of the year amid ongoing supply disruptions.

A huge withdrawal of metal from LME warehouses earlier this week fueled speculation of a supply squeeze. However, recent weak economic data in China suggests the market shortages may not be as great as expected.

A rare upgrade in forecasts for copper production also weighed on sentiment. Rio Tinto ((RIO)) said it now expects 2025 copper production from its Oyu Tolgoi copper mine in Mongolia to reach 860-875kt, up from its previous forecast of 780-850kt. This was driven by accelerated operations.

Silver gave back some of this week’s gains, as traders took profit following an eight day rally that was seen as overdone. The white metal has nearly doubled this year, with most of the gains occurring in the last two months.

Gold managed to hold its ground, after the latest US jobs data did little to sway expectations of a Fed interest rate cut next week. Applications for unemployment benefits hit their lowest in more than three years. Safe haven buying was also tepid amid easing geopolitical tensions

Corporate news in Australia

-ChatGPT owner Open Ai will become the major customer of NextDC’s ((NXT)) $7bn, 650MW data centre at Eastern Creek.

-Bendigo and Adelaide Bank ((BEN)) is buying RACQ Bank’s retail assets for -$5.2bn, completion is expected in early FY27.

-Nuix ((NXL)) is acquiring French AI platform Linkurious for -$35m.

-ARN Media ((A1N)) sells -19.1m shares in Southern Cross Media ((SXL)).

-Regis Healthcare ((REG)) is selling two FNQ care homes to Ozcare for $25m.

-Alvia Private Capital is buying a majority stake in The Automotive Group.

-Mayne Pharma ((MYX)) is seeking to terminate the Cosette takeover.

-Rio Tinto ((RIO)) is selling up to -$15.1bn in assets and reducing decarbonisation spending.

On the calendar today:

-EZ 3Q GDP

-US Oct Durable Goods

-US Sept PCE

-ARAFURA RARE EARTHS LIMITED ((ARU)) AGM

-BISALLOY STEEL GROUP LIMITED ((BIS)) ex-div 16.4c (100%)

-PREMIER INVESTMENTS LIMITED ((PMV)) 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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