November 20, 2023

Markets Today – I get knocked down, but I get up again

Another choppy night on bond markets with 10yr yields on net little changed and the curve twist flattening slightly.

Todays podcast

  • Oil up (Brent +4.1% to $80.61); Saudi talk of extending cuts; cuts by others  
  • Yields mixed, though US 10yr little changed at 4.44%; ditto S&P500 +0.1%
  • USD weaker (DXY -0.4%), broad-based weakness with AUD +0.5% to 0.6510
  • This week: RBA’s Bullock, FOMC Minutes, UK Budget, Global PMIs, Thanksgiving
  • Coming up: Very quiet, CH Loan Prime Rates, ECB’s Lane, BoE’s Bailey


Key events/headlines
UK: Retail sales ex auto fuel (m/m%), Oct: -0.1 vs. 0.5 exp.
US: Building permits (k), Oct: 1487 vs 1450 exp.
US: Housing starts (k), Oct: 1372 vs. 1350 exp.
BN: Oil Rebounds on Expectations OPEC Will Move to Support Prices


I get knocked down, but I get up again; You are never gonna keep me down”, Tubthumping, Chumbawamba 1997


Another choppy night on bond markets with 10yr yields on net little changed and the curve twist flattening slightly. The bigger moves were in oil and the USD. Brent oil rose 4.1% to $80.61 on reports Saudi was talking of extending supply cuts along with potential cuts by others in OPEC+, reversing what seemed to be technical-driven moves on Thursday when oil fell sharply by -4.7% to below $77. The USD (DXY -0.4%) was the other big mover with broad-based based declines: EUR +0.5% to 1.0915; GBP +0.3% to 1.2462; USD/JPY -0.6% to 149.63; and AUD +0.5% to 0.6510. The move in the USD reflects the improved risk tone seen since last week’s softer-than-expected US CPI, falling bond yields, and an increasing amount of Fed rate cuts being priced. The DXY has now retraced almost 3% from the late October highs. The Japanese yen outperformed trading back below 150. The latest CFTC data revealed speculative accounts increased Yen short positioning to the highest level since April 2022.

As for yields the curve twist flattened. The US 10yr was -0.0bps to 4.44%, though it did reach a low of 4.38% before reversing alongside stronger than expected housing construction data. US building permits were 1,487k vs. 1,450k and housing starts also beat at 1,372k vs. 1,350k. 2yr yields saw a larger response to the data with 2yr yields up 4.7bps to 4.89% (low 4.79%; high 4.92%). Fed funds pricing for cuts was pared slightly with 92bps worth of cuts in 2024, down from 98.6bps of cuts on Thursday, but still very much up on the 77.3bps it was at a week ago. Even though oil prices rose, implied inflation breakevens were little changed with the 10yr breakeven -0.0bps to 2.29%. Some of the earlier drift down in yields was partly in sympathy with a soft UK retail sales report with Gilts outperforming – 10yr Gilt yields -4.7bps to 4.10% vs. 10yr German -0.2bps to 2.59%. The ECB’s Wunsch added a few ripples mid-session by saying that the ECB might have to tighten in the case of an oil shock.

Looking at UK retail sales, they did unexpectedly fall in October. Sales excluding fuel slipped 0.1% m/m against expectations for a 0.5% rise. It is unclear what the significance of this is given the consensus looked low in the light of the excessively wet weather seen during the month. The statistician indeed noted the weather effect reduced footfall, as well as the cost-of-living impact. Overall and big picture it does play to the view of a squeeze on household incomes which is helping to slow inflation – retail volumes now at the lowest levels since Covid-19 lockdowns. As in Australia, there is a lot of focus on housing debt and there are an estimated 1.6 million mortgages to be refinanced at significantly higher rates next year. Market pricing implies that the Bank of England tightening cycle is complete and the bank will begin to ease policy from the middle of 2024.

Equity markets consolidated after a week of strong gains. The S&P500 was +0.1% after having risen 2.2% on the week. Interestingly it has been the lower cap stocks that outperformed over the past week with the soft-than-expected CPI print the major driver – Russel 2000 +5.4% and the Equal-weighted S&P500 +3.2%. Positioning has been light amongst the small caps amid outperformance over the past year by large cap tech. It has been a very sharp rally over the past month with the S&P 500 is up 7.6% and Nasdaq up 9.9%.

Finally in Australia, one piece of news worth noting. The QLD government is doubling the first home buyer grant to $30k for new builds. The new grant only applies to buying or building a new home valued under $750,000, and comes into effect on Monday. Interesting the grant can be given in a range of circumstances: “You can also use it for money towards a new home, a unit, a townhouse or even if your parents want to put a granny flat out the back, so it covers the whole range of the spectrum“. The grant comes at a time when there is already evident inflationary pressures in housing construction, while most economists suggest the grant will be quickly reflected within selling prices (see ABC News: Queensland government doubles first home owner grant to $30k for new builds, including granny flats).

This week

  • Australia: RBA Governor Bullock speaks on Tuesday (10.00am) and Wednesday (7.35pm). While the topic of the respective speeches will be interesting, more important will be the Q&A to tease out the RBA’s mild hiking bias. The “whether” qualifier was inserted into both the post-Meeting Statement and the November SoMP, significantly watering down the RBA’s tightening bias. There is still a lot of uncertainty around whether the data flow needs to surprise relative to their November forecasts for them to hike again, or whether data in line with forecasts which assumes a partial rate hike and only sees core inflation back at 2.9% by 2025 is enough for them to hike again. The RBA Minutes are on Tuesday , but we are unlikely to learn much from here given the Overview Chapter for the November SoMP read like the Minutes – the case for a 25bp hike and for keeping rates on hold was discussed.
  • Offshore: It is very quiet with Thanksgiving on Thursday 23 November in the US with equity and bond markets closed on Thursday, and limited trade on Friday (US equities will close 1pm, US cash bonds 2pm, futures open as usual). Thanksgiving is also celebrated outside of the US, including with a public holiday in Japan on Thursday. Expect thin markets globally on Thursday and Friday. Before then, the big items on the calendar are the FOMC Minutes (Wednesday), and the European PMIs (Thursday) . Note the PMIs for the US and Japan are delayed due to thanksgiving and will be published on Friday. Also of interest is Canada CPI (Tuesday). In China the 1 and 5 year loan prime rates are expected to be unchanged. In the UK Autumn Statement on Wednesday. And in NZ Q3 retail figures are on Friday.

Coming up

  • CH: 1-5yr Loan Prime Rates: expectations are for unchanged with the 1yr 3.45% and 5yr 4.20%.
  • EZ: German PPI & ECB speakers: unlikely to be market moving; consensus sits at -11.0% y/y. As for ECB speakers, unclear how much they can add – Lane, Villeroy, de Cos, and Vujcic.
  • UK: BoE’s Bailey: Governor Bailey gives the Henry Plumb memorial lecture.
  • US: Fed’s Barkin: We’ve heard a lot from Fed speakers recently, including Barkin, so unclear what more this will add.

Market Prices


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The AUD in November 2023

The AUD in November 2023

1 December 2023

The AUD in November AUD/USD returned to ‘normal’ levels of monthly volatility in November.

The AUD in November 2023