RBA: RBA Says Still Needs To Work On Bringing Inflation “Sustainably” To Target
RBA Governor Bullock and Assistant Governor (Financial Markets) Kent have appeared before the Senate Economics Committee. There was little added to the November meeting’s message that the persistence of Q3 inflation is being monitored but the RBA expects the quarterly CPI changes to moderate over coming quarters. Bullock did note that if the rise proves more persistent then it would signal higher demand pressures and that there would be implications for monetary policy.
- The AUD OIS market has around a 50% chance of a rate hike priced in by the August 2026 meeting.
- Bullock admitted that inflation is “not yet sustainably” within the band and that the Board needs to keep “working on this”. While inflation has been above the 2.5% mid-point for a prolonged time, projections that it will be around that point within the forecast horizon and anchored inflation expectations reassure the bank. The risk is that they could become unanchored the longer it takes inflation to return to 2.5%.
- She noted that the Q3 rise in inflation may suggest a rebuilding in margins after they were squeezed earlier but still reflects demand strong enough to allow this.
- The unemployment rate at 4.3% is “a little bit below NAIRU”, a concept that is difficult to estimate. The underemployment rate also signals that the labour market remains a little tight.
- The RBA sees policy as well positioned to respond to overseas risks including a resumption of trade wars, geopolitical tensions, rising government budget deficits, elevated asset prices and China’s economy.
- Risks from China stem from its ongoing property sector problems, soft domestic demand growth and a resumption of its trade war with the US or other countries introducing trade barriers to cheap imports from China.
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GOLD: Gold Cautious On Uncertain Fed Outlook & Changed US-China Trade Relations
Gold prices were moderately lower on Friday but finished above $4000/oz. They fell to a low of $3972.71 but finished at $4002.92 to be down 0.5% on the day, as the US dollar strengthened (BBDXY +0.2%), and 2.7% on the week. Bullion returned to trade above $4000 following the meeting between presidents Trump and Xi on Thursday. While Trump sounded very positive, the one-year pause created scepticism that trade relations will return to where they were, which has supported gold prices.
- Gold approached the 50-day EMA at $3853.2 on Friday after breaking through support at $3886.6. If it clears the 50-day EMA, then the short-term bear theme would be strengthened.
- China has removed its retail gold tax break which is likely to reduce demand.
- Bloomberg observes that there were outflows from gold ETFs for six straight days until Thursday. Westpac believes that this is contributing to gold’s correction and that prices could fall to around $3750.
- Hawkish comments from Fed Chair Powell that a rate cut in December is not a given also pressured non-yield bearing bullion. The OIS market now has around 17bp priced in for the 10 December decision and it was close to 25bp before the 29 October meeting.
- Silver was down 0.5% to $48.689 on Friday to be flat on the week and up 4.4% in October. It reached a high of $49.370 early in the European session and then sold off to $48.384, holding above the 50-day EMA at $45.852.
- Equities were mixed with the S&P up 0.3% but Euro stoxx down 0.7%. Oil prices were slightly higher with Brent +0.5% to $64.58/bbl. Copper rose 0.2%.
US TSYS: Bond Yields Still Lower for October, Despite Last Week's Moves
Bond futures finished lower last week with TYZ5 ending at 112-21+, down from 113-13 the week prior. There is no trading today as Japan is closed. TYZ5 sits atop the 50-day EMA of 115-15 which it hasn't trade below since mid-August.
To an extent, the move higher in yields last week may have overlooked a broadly positive week for bonds, with yields in key maturities all finishing 5-8bps lower.
- The US 2-Yr finished October at 3.57%, -5bps for the month
- The US 5-Yr finished at 3.689%, -5bps for the month.
- The US 10-Yr finished at 4.07%, -8bps for the month.
- The US 30-Yr finished at 4.65%, -5bps for the month.
With data releases in the US still uncertain, the bond market continues to focus on issuance. Issuance tonight will not be market moving with 13 and 26 week bill issuance the key auctions.
BONDS: NZGBS: Little Changed, Wed's Q3 Labour Mkt Data In Focus
In local morning trade, NZGBs are unchanged after US tsys finished Friday with modest gains across the curve (flat to 3bps richer).
- US equities ended the month on a positive note. Earnings season remains in focus for investors. The vast majority of the 60% of S&P firms that have reported results so far have exceeded analyst estimates, according to Bloomberg.
- Kansas Federal Reserve President Schmid said he voted against the decision to reduce rates by 25bp last week due to concerns about inflation.
- NZ home-building approvals rose 7.2% m/m in September versus revised +6.1% in August.
- The key event in NZ this week is the Q3 labour market and wages data released on Wednesday. Filled jobs for the quarter signal a stabilization, but employment is likely to have remained weak, with consensus forecasting it to rise only 0.1% q/q to be still down 0.2% y/y. The unemployment rate is expected to rise 0.1pp to 5.3%, in line with the RBNZ’s August projections. Soft labour demand is likely to weigh on private wage growth, which is forecast to rise around 0.4% q/q after 0.6%.
- RBNZ dated OIS pricing is little changed across meetings. 23bps of easing is priced for November, with a cumulative 30bps by February 2026.
