Ahead of the game: 6 November 2023

US equity markets soared, and bond yields fell after the Fed kept rates on hold and raised expectations that the Fed’s rate hiking cycle is over. The fall in bond yields was also supported by news that the US Treasury will slow the pace of debt issuance, which has weighed on bond markets and is used to fund government spending.

In Australia, the ASX 200 has started November with a spring in its step, doing its best to recover from the aggressive sell-off that marked the end of October. The extent of further gains will depend on next week’s RBA Board Meeting, where the interest rate market sees a 50% chance of the RBA lifting rates by 25bp to 4.35%.

• In the US, the Fed kept rates on hold, raising expectations that its rate hiking cycle is over
• The US ISM Manufacturing PMI surprised to the downside at 46.7 vs 49 expected
• In Europe, inflation in October surprised to the downside, falling to 2.9% YoY from 4.3% previously
• In the UK, the BoE kept rates on hold at 5.25% with a 6-3 vote and reiterated the higher for longer message
• In China, the PMI for October surprised to the downside, falling to 50.7 from 52 previously
• BoJ changed its yield curve control, replacing 1% hard cap on 10-year JGB yields with 1% reference point
• In NZ, the unemployment rate rose to 3.9% in Q3 from 3.6% previously
• Crude oil fell 3.44% this week to $82.61 as headlines around the Middle East continue to drive sentiment
• Gold consolidated recent gains this week, falling 1% to $1985 ahead of the weekend
• Wall Street's gauge of fear, the Volatility index, plunged 26.4% to 15.65 as the conflict in the Middle East remained contained.
  

• AU: RBA interest rate decision (Tuesday, 7 November at 2.30 pm AEDT)
• AU: RBA Statement on Monetary Policy (Friday, 10 November at 11.30 am AEDT)
  

• CN: Trade Balance (Tuesday, 7 November at 2 pm AEDT)
• CN: CPI (Thursday, 9 November at 12.30 pm AEDT)
  

• UK: GDP (Friday, 10 November at 6.00 pm AEDT)

• US: Michigan Consumer Sentiment (Saturday, 11 November at 2 am AEDT)

• AU

RBA interest rate decision

Date: Tuesday, 7 November at 2.30 pm AEDT

At its meeting in October, the RBA kept its cash on hold at 4.10% for a fourth consecutive month. The RBA’s statement under new Governor Michele Bullock was little changed, and a tightening bias was retained.

Hawkish RBA communique, initially observed in the RBA meeting minutes released in mid-October, has put the market on notice.

“The Board has a low tolerance for a slower return of inflation to target than currently expected. Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.”

Considering the RBA’s more hawkish rhetoric and the run of stronger-than-expected economic data listed below, we expect the RBA to raise rates on Tuesday by 25 bp to 4.35%. However, it is expected to be a close call, particularly given global central bank peers, including the Fed and the BoE, appear to have ended their rate hiking cycles.

• In September, the unemployment rate fell to 3.6% vs 3.7% expected
• Q3 Inflation (Trimmed mean) increased to 5.2%YoY vs 5.0% expected
• Q3 PPI rose by 1.8% vs 0.4% previous
• Q2 GDP printed at 2.1% YoY vs 1.6% expected
• Retail Sales for September increased by 0.9% vs 0.3% expected.

RBA cash rate chart

• CN

CPI

Date: Thursday, 9 November at 12.30 pm AEDT

In September, China's consumer price growth stalled at 0% YoY, reflecting weak domestic demand. Expectations are for the October CPI to revert to deflation at -0.2% from the previous 0%. Similarly, China’s producer prices are expected to turn in a deeper contraction in October at -2.9% from the previous -2.5%, marking its 13th straight month of contraction.

The inflation data likely reinforces the weaker-than-expected Purchasing Managers' Index (PMI) figures seen this week, pointing to subdued growth conditions. The series of weak economic data may further add to calls for more policy support from authorities to support the economy.

China's inflation rate chart

• UK

GDP

Date: Friday, 10 November at 6 pm AEDT

In the second quarter (Q2) of 2023, GDP in the UK increased by 0.2%, following an upwardly revised 0.3% in Q1. The number was boosted by household consumption and manufacturing output.

In Q3, the market is looking for growth to fall to 0.0%, reflecting the impact of the Bank of England's aggressive rate rises and weaker than the Bank of England projected in their August report.

The softer growth profile, lower inflation and cooling labour market were behind the Bank of England's decision this week to keep rates on hold at 5.25%.

UK GDP growth rate

• US

Michigan Consumer Sentiment

Date: Saturday, 11 November at 2 am AEDT

Consumer spending makes up two-thirds of the US economy on average. The upcoming UoM consumer sentiment data will provide fresh views of how US households are holding up amongst the cost-of-living pressures of higher interest rates, and sticky inflation.

Expectations are for the preliminary consumer sentiment read for November to come in at 65.0, up slightly from 63.8 in October. Historically, a sharp decline in US consumer sentiments tends to be a harbinger of recessions. Therefore, a continued trend of improving sentiments may potentially offer some pushback against recession fears, at least for now.

• US

Q3 2023 earnings season

Q3 earnings season continues with reports set to drop from companies including Uber, Walt Disney (preview), Roblox, Robinhood, Under Armour, Twilio and many more.

Economics calendar

All times shown in AEDT (UTC+10).