US equities posted modest gains on Tuesday while remaining in a narrow range ahead of key economic data on Wednesday and Thursday.
United States
Treasury yields extended a decline following comments by Fed officials overnight. Governor Christopher Waller, who has been one of the more hawkish policymakers, noted he’s “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%”. Adding to this, Waller also noted that if inflation continued to cool for “several more months…that we feel confident that inflation is really down and on its way, that you could then start lowering the policy rate just because inflation is lower”. It seems these comments were enough to offset more hawkish comments from Michelle Bowman who said they expect to support additional tightening and that “My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive” while adding “monetary policy is not on a preset course”.
Following these comments, yields declined across the curve with the policy sensitive 2-year rate down the most by -10.8 basis points, with the 10 and 30-year rates declining a more modest -4.7 and -1.4 basis points respectively. The S&P500 was 0.10% higher, the Dow Jones rose 0.24% along with the Nasdaq Composite 0.0.29%. Attention now turns to the final reading of Q3 GDP tonight, expected to show the economy expanded at a 5% annualised rate. Meanwhile, Thursday will bring the latest PCE inflation data, the Fed’s preferred measure of inflation, expected to have risen 3% for the 12 months to October and 3.5% for core prices.
Europe
European equities declined on Tuesday as investors await key economic data later this week, including German inflation for November tonight followed by Eurozone inflation and German employment data on Thursday. Forecasts are for German prices to have eased from 3.8% to 3.5% over the year to November, with analysts forecasting a -0.2% drop over the month. The Euro Stoxx 600 finished -0.3% lower along with the CAC -0.21% and FTSE100 -0.077% while the DAX rose 0.16%.
Australia
The ASX is expected to open higher this morning, with ASX200 futures up 0.23% to 7,054. The index rose 0.39% on Tuesday after softer retail sales data prompted expectations that further tightening by the RBA may not be needed after recent hawkish comments from Governor Michelle Bullock. Over the month of October, sales declined -0.2% compared to a 0.1% increase forecast. This is the weakest reading since June, with ABS head of retail statistics Ben Dorber noting that “It looks like consumers hit the pause button on some discretionary spending in October, likely waiting to take advantage of discounts during Black Friday sales events in November” noting that this was a pattern that has developed in recent years. According to economists at Bloomberg, the weak report shows that sales would be cratering if it were not for a surge in population growth, which is expected to ease in 2024, casting doubt on the central bank’s view of stronger-than-expected demand.
Australian Retail Sales (MoM %)
In focus today is the latest monthly inflation estimate is due this morning at 11:30 AEDT, forecast to have eased from 5.6% to 5.2% over the 12 months. Ahead of the data release, the Australian dollar is 0.56% higher at 0.6644 overnight while the 3-year bond yield declined -6 basis points to 4.159% on Tuesday after the retail sales data.
Commodities
To commodities, oil prices rose overnight with both WTI and Brent crude up 2.1% and 2.13% respectively as OPEC+ members continue negotiations over output levels. The move comes ahead of the latest API inventories report at 08:30 AEDT. Iron ore futures posted a -2.93% decline on Tuesday and are extending weakness this morning by -0.47% while copper is 1.22% higher. Gold rose 1.33% to US$2,040.97 an oz, with silver also gaining 1.49%.
Economic Calendar
29th November 2023
Australian Inflation (YoY Oct) 11:30
RBZN Rate Decision 12:00
German Inflation (YoY Nov) 00:00
US GDP (QoQ Q3) 00:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
