PRECIOUS METALS: Gold Continues To Pullback As Risk & The USD Recover

China bond futures have had one of their strongest days in December as bond futures posted gains Tuesday.  A report in the Shanghai Securities news citing the Chief Macro Analyst from Golden Credit Rating could be behind it as the report suggests that cuts to rates and RRR's will come in Q1 2026.  

• The 10-Yr is up +0.21 today to 108.15 trading through the 20, 50 and 100-day EMAs.  The 10-Yr is now wedged between the topside resistance from the 200-day EMA at 108.30 and the downside resistance from the 100-day EMA of 108.09.
• The 2-Yr is up +0.05 to 102.51, above all major moving averages, having traded through the 200-day EMA of 102.49 this morning.  
• Cash is stable with the 10-Yr CGB down -0.5bps to 1.83% and the 2-Yr at 1.37%

Aussie bond futures are ticking up, in line with regional trends, while the RBA Minutes from the Dec policy meeting didn't deliver any fresh hawkish surprises. 3yr futures (YM) were last +4.5bps to 95.80, while the 10yr (XM) have ticked up 3bps to 95.18. This keeps recent ranges intact. ACGB yields are around 3.5-4.5bps lower, with the front end leading the yield correction. 

• The RBA minutes noted that the Board felt it needed more time to assess data to determine how persistent the pickup in inflation is. It was “too early” to know especially given the newness of the monthly CPI. It did note that the October reading increased the risks that Q4 could exceed its projections. Importantly, the “circumstances” that would drive a hike were discussed. However, it noted a number of times that it was appropriate to be “cautious”.
• The 10yr ACGB yield has backed off an upside test of 4.80% for now (last near 4.755%), while the 3yr was just under 4.115%. This leaves the 3/10s curve at +64bps, slightly steeper. The AU-US 10yr spread is slightly lower at +61bps, but still close to recent cycle highs.
• RBA hike odds for the Feb meeting next year remain around 35%, with an implied rate of 3.685% (against the current policy rate of 3.60%). Hence little change post the RBA minutes. 

The RBA stated as part of its December decision to leave policy on hold that while the wage price index “has eased from its peak” other “broader measures” were showing “strong growth”. Many measures are quarterly and thus backward looking but Q4 monthly data to date have been mixed. 

• November SEEK advertised salaries rose 3.8% y/y up from 3.6% and the highest since September 2024. 3-month annualized momentum picked up to 4.0% from 3.7% and has been trending higher since the August trough.
• Q4 average SEEK salaries rose 3.7% y/y up from Q3’s 3.4% and is signaling a pickup in Q4 WPI growth, which won’t be released until 18 February. This is likely to concern the RBA which is forecasting it to hold at 3.4%. 

Australia wages growth ex bonuses y/y%

Source: MNI - Market News/ABS/SEEK

• While SEEK salaries are indicating higher wage inflation, NAB’s business labour costs slowed in Q4. The 3-month change moderated 0.1pp to 1.4% in November. The Q4 average is currently at 1.4% down from both Q3’s 1.8% and Q2’s 1.6%.
• The RBA was likely worried about the sharp rebound in average compensation per employee in the Q3 national accounts which rose 1.8% q/q and 5.4% y/y. This was up from 4.0% y/y in Q2 and the highest annual growth rate in two and half years.

Australia average compensation per employee y/y%

Source: MNI - Market News/ABS

• It has been worried about unit labour costs for some time which rose 1.3% q/q and 4.9% y/y in Q3, the strongest in over a year.
• Easing WPI growth appears to have stalled mid-year with both Q2 and Q3 rising 0.8% q/q and 3.4% y/y. However, the last RBA statement showed that the Board has a range of wage indicators that it considers.