AUSSIE BONDS: 10yr Futures Break Lower Amid Broader Moves, More GDP Partials Tue
Futures are weaker, led by the back end, with the 10yr (XM) off 4bps to 95.435, while the 3yr (YM) is down 2bps to 96.075. For the 10yr this is fresh lows since early Jan this year. The Jan 14 low was 95.30 in terms of a downside target. For the 3yr we are eyeing a test under 96.00. Broader bond futures have been softer in the US, likely seeing negative spill over to Australia, while JGB futures are also down as BoJ Governor Ueda said a Dec hike would be considered. The AU-US 10yr spread has been relatively steady today, around +51bps, just off recent highs.
- The cash ACGB 3yr yield was near 3.89%, with 4.00% an upside target if current trends persist. The 10yr is up to 4.55%, leaving the 3/10s curve at +66bps, slightly steeper for the day.
- On the data front today, Q3 Australian company profits were weaker than expected posting a flat outcome on the quarter after Q2’s sharp fall of 2.6% q/q and are now up only 1.1% y/y (strongest since Q1 2023 though). Inventory volumes fell 0.9% q/q which is likely to be a small detraction from Q3 GDP growth currently expected to rise 0.7% q/q and released on Wednesday. The net export and public demand contributions are released Tuesday.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
