The Overnight Report: QE Is Back!

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A highly anticipated Fed rate cut in combination with a sooner-than-expected "QE-but-don't-call-it-that" has injected renewed optimism in equities.

SPI futures are signalling buyers are lining up for today's session in Australia for a positive start to the day.

Good Morning,

SPI futures are indicating the local market stands ready to jump higher this morning, after a -25bp rate cut from the Federal Reserve and the authorisation to purchase short-term Treasuries to maintain “ample” supply of bank reserves (don’t call it QE).

AI-beneficiary Oracle reported after the close and early indications are it disappointed. 

On Wednesday, the Australian market eased for a third consecutive day with the ASX200 down -7pts or -0.1% to 8,579.

Nine of eleven sectors finished lower, led by tech down -1.5%, while materials rose, up 1.3% led by gold miners.

Overnight, the Dow Jones Industrial Average advanced by 497.46 points, or 1.1% to 48,057.75, the S&P 500 rose by 0.7%, or 46.17 points to 6886.68 and the Nasdaq added 0.3% to 23,654.16.

Sometimes, dots speak louder than words and actions, CIBC Economics extract

The Fed cut rates by -25 bps today, as expected, but it was certainly a hawkish cut within a divided committee.

There were two dissents against the cut, and a total of six dots favoring no change in policy today (four non-voters in addition to the two dissents).

Miran once again voted for a larger cut, and likely a lower rate path than in September, but that is just noise at this point.

The accompanying December projection showed that the median voter favored no change relative to the September projection—one cut in each of 2026 and 2027—but the distribution of the dots in 2026 is slightly more hawkish, almost evenly split between a 3 % and 4 % midpoint, after stripping out the known outliers.

There are fewer dots below-neutral policy in 2026 than in the September projection.

Despite three straight rate cuts and a cooling labor market, the FOMC sent a clear signal that inflation risks are not an afterthought, and that a growing part of the committee is willing to fight them now that policy is close to or within the neutral range.

Powell reiterated the committee should seek to balance the tension in its job-market and inflation mandates, and did a good job of not leaning too much to one side by feeding into the gloom on the job market, as expressed by some members.

The near-term path of policy is also cloudy, with the committee likely to view incoming data for October and November with a “skeptical eye,” given distortions arising from partial data collection.

The dust will likely not fully settle until the Fed starts to see December data, which casts some doubt about a move in January.

Adding to that, the FOMC will shuffle voting members and the new roster could be marginally more hawkish, and more open about their views, than the 2025 configuration of the committee.

We learned a lot more than we usually do from the press conference as well. The Fed’s view on growth has changed, with Powell putting more weight on the growth impulse from AI continuing into the new year, and noting that, while persistent inflation risks are nothing to sneeze at, underlying inflation, excluding the impact of tariffs, has made progress in the Fed’s view.

His tone on the job market was far more balanced than in the prior meeting as well.

While these are all sensible views, many of which we share, they do not necessarily add up to the hawkish message sent in the dots today.

If you believe inflation is still a one-time price level shock, and the job market has moved a touch weaker than expected, some additional insurance of two rate cuts in 2026 seems reasonable.

Two possible explanations for what we saw today. 

First, the committee may not be very confident about the path ahead with so many moving parts (Supreme Court ruling, AI spending, tariff pass-through) and is waiting to see whether Q4—and possibly early-2026—data provide the clarity it needs.

Second, this may be a signal that the committee intends to take a hard line against a new Chair who might not focus as intensely on guarding both sides of the Fed’s mandate.

Perhaps it is both.

But the Fed’s choice today was a wise one, even if it is a bit overdue. We expect one more rate cut in 2026 under Powell’s tenure.

What happened overnight, NAB Markets Today extract

The FOMC cut by -25bp as expected and the 2026 median dot continues to show one more cut by the end of next year, less than market pricing.

There was some volatility in rates markets after the decision but yields are lower. 2yr yields are down around -4bp since the decision and -6bp over the day at 3.54%.

Equity markets found support having been little changed ahead of the decision. The US dollar is broadly weaker, down -0.5% on the DXY.

A weaker US dollar is perhaps the most notable reaction from what was evidently a less-hawkish-than-feared cut.

The euro is 0.6% higher around 1.17. The AUD, having traded a small range for most of the past 24 hours is now up around 0.6% at 0.6684.

The yen, which had been the underperformer earlier in the week has also benefitted from the broad USD move, with USDJPY 0.7% lower.

It was a quiet session ahead of the FOMC decisions in the last couple of hours with US equities tracking broadly flat, US Treasury yields a little lower and near the bottom of their range for the day and the USD was modestly weaker even as currency moves were only small.

The post meeting statement had only minor changes. “The unemployment rate has edged up” but was no longer characterised as remaining low.

’The extent and timing’ was added to “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

Also new was that “the Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis.”

Purchases will begin on 12 December. In the press conference, Powell said he wasn’t ‘concerned’ with tightness in money markets.

“We knew this was going to come,” and it just came a little quicker than expected.

Asked in the press conference, Powell said he doesn’t think a hike is anyone’s base case next move.

He said “what you see is some people feel we should stop here and that we’re at the right place and just wait. Some feel we should cut once or more this year and next…. It is either holding here or cutting a little or cutting more than a little…” 

Powell said officials are “well positioned” to wait and see how the economy evolves from here.

Elsewhere in the new SEP projections, Core PCE was revised down a tenth in 2025 and 2026 and show 2.5% over 2026 and 2.1% over 2027.

Unemployment was little changed, 4.4% next year and 4.2% (down form 4.3%) for 2027. GDP growth was revised higher, to 2.3% over 2026 (from 1.8%) and 2.0% over 2027 (from 1.9%).

Earlier data in the US showed the Employment Cost Index for Q3 was up 0.8% qoq, a tenth below consensus. Private sector wages and salaries also rose 0.8%, leaving the year-ended rate unchanged at 3.6%.

Earlier and further north, the BoC kept rates on hold as widely expected.

In the post meeting press conference, Governor Macklem noted resilience evident in the latest data but said it “hasn’t fundamentally changed our view”, which supported a -4bp fall in Canadian 2yr yields.

In our time zone yesterday, China inflation data was near expectations. CPI jumped higher to 0.7% from 0.2% on the back of food prices going from -2.9% yoy to 0.2%.

That is partly base effects, and partly weather disruptions driving higher vegetable prices. Underlying inflation was unchanged at 1.2%.

The NBS noted gold jewellery prices are a support, up 58.4% over the year. Elsewhere, Soft domestic demand was evident in waning services prices and the fading impact of the consumer goods trade in scheme.

PPI remains firmly negative at -2.2%, expectation were for a 1 tenth improvement to 2.0%.

Walmart Goes Nasdaq, Yardeni extract

On Sunday, we wrote, “In effect, our spin is that every company is evolving into a technology company.”

Today, Walmart transferred its primary listing to the technology-heavy Nasdaq from the New York Stock Exchange, where it has traded since 1972—making it the largest company ever to make that move. 

Walmart CEO Doug McMillon cited the company’s technology progress as the main factor behind its decision to move to the Nasdaq.

“Walmart’s changed a lot, and we’re trying to make sure everybody knows it,” he said. In other words, Walmart wants to be another AI play.

Its stock price is up 27.3% ytd.

Corporate news in Australia

-Transurban ((TCL)) is prepared to scrap administration fees by mid-2026 and compensate the NSW government for any extra traffic generated by a permanent $60-a-week toll cap, as the state pushes ahead with its tolling reform.

-Telix Pharmaceuticals ((TLX)) has struck a strategic clinical collaboration with Varian, a Siemens Healthineers company

-AMP Ltd ((AMP)) has reached an agreement in principle to settle the class action over historical advice and insurance commissions, originally launched in 2020

-Coles Group ((COL)) is expanding its partnership with Uber to provide over 50% more groceries for delivery within an hour

-Healthscope receivers reject Northwest-Calvary bid for 12 hospitals as inadequate.

-Sembcorp is eyeing Alinta Energy ($4bn) with inclusion of Loy Yang B uncertain amid renewables expansion.

-Flight Centre Travel ((FLT)) buys Iglu Cruise for -GBP100m to grow its cruise business and enter the US market.

-HSBC Australia’s retail sale delayed with credit funds involved and National Australia Bank ((NAB)) deposits.

-IFM to buy Benson Radiology for $400m amid M&A in the active imaging sector.

-Rio Tinto ((RIO)) is readying for non-core asset sales looking to private equity buyers.

-Ramelius Resources ((RMS)) shares jumped after the miner announced a $250m share buyback and dividend lift.

On the calendar today:

-US Sept Trade Balance

-US Sept Wholesale Trade

-US Weekly Jobless Claims

-IMMUTEP LIMITED ((IMM)) Data Presentation at Symposium

-MYER HOLDINGS LIMITED ((MYR)) AGM

-PREMIER INVESTMENTS LIMITED ((PMV)) ex-div 50c (100%)

-SOLVAR LIMITED ((SVR)) ex-div 2.5c (100%)

-THETA GOLD MINES LIMITED ((TGM)) AGM

-WESTPAC BANKING CORPORATION ((WBC)) 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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