AUSSIE BONDS: Twist-Steepener, Dec Cut Gone But Hopes Remain For 2026

A strong day for regional equities with the KOSPI reaching new highs and the NIKKEI nearing recent new highs.  As the FED Reserve hinted that the two rate cuts expected remained a possibility markets were buoyed as regional currencies rallied along with most bond markets.  The FED's actions typically lead others in the region, opening up the possibility for further cuts.  The next major Central Bank meeting is the Bank Indonesia next week where concerns are rising as to the new FinMin could try to influence policy.  The deflationary problem facing the Chinese economy was in full view today with the release of the September CPI and PPI, with both remaining negative.  The CPI at -0.3% missed estimates of -0.2% as one of the longest streak of price declines in decades continues.

• The NIKKEI's rally of +1.15% along with the KOSPI's rally of +2.05% sees both indexes maintain their position north of all major moving averages.  
• The HSI in Hong Kong has bounced today to be up +1.15% and near to the 50-day EMA.  The weakness in recent days following the US trade moves sees the Hang Seng back below the 20-day and 50-day EMA for the first time since April yet with most major moving averages remaining upward sloping, indications are  that the bullish momentum could return.  
• Taiwan's TAIEX is up over 300pts today as it nears the recent new high on October 9th.   Taiwan’s biggest life insurance company Cathay Life plans to shift over NT$7 trillion ($228 billion) in investment mandates to its parent group’s asset management arm as part of a push to make the island’s money management industry regionally competitive and a move seen supportive of domestic equities. 

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NZGB yield losses have extended as the Wednesday session had unfolded, supported by lower US Tsy yields (the 10yr Tsy eyeing a fresh test of 4.00% on the downside is a focus point). We are around 4.5-7bps lower across the NZGB benchmarks, with the back end leading slightly. The 2yr bond is at 2.55%, while 10yr is at 4.02%, close to a 4.00% test. The NZ 2/10s curve is little changed at +147bps. 2yr swap rates are at fresh cycle lows of 2.32%. Downside focus will rest on a move under 2.25% (levels last seen in early 2022) 

• The NZ-US 10yr spread is trending lower, albeit little changed today near +2bps. The bias is likely to remain for NZGB yields to see greater downside relative to the US and Australia, but focus will be on whether US Tsy yield losses accelerate if we can sustain a break under 4.00% for the 10yr.
• The RBNZ's Chief Economist spoke earlier. He reiterated that the MPC is open to further easing dependent on the data. While inflation is expected to moderate to 2% in 2026, Conway said it was “nerve-racking” that it was close to the top of the band. Q3 CPI prints on 20 October.
• A 25bps cut is just about fully priced for the Nov meeting, which would take the policy rate to 2.25%. Into 2026 market pricing is at 2.09% for the July meeting.  

Gold has rallied again today with it reaching another new high at $4190.97/oz. It is up 1.1% at $4188.3 so far driven by Fed Chair Powell signalling that rates are likely to be cut again on 29 October, which had been almost fully priced in, due to the softer labour market and less concern regarding rising inflation. His comments have also pressured the US dollar (BBDXY -0.2%) and US yields lower. Another 25bp is priced in for the December decision. 

• US-China trade tensions continue to provide support even though talks are taking place. Tuesday China imposed curbs on 5 US units of Korea’s Hanwha shipbuilder and today President Trump threatened to halt cooking oil trade with China.
• Bullion has momentum despite it now flashing overbought. It is above initial support at $4179.7, Tuesday’s intraday high, opening round number resistance at $4200.0.
• Silver has unwound a large share of Tuesday’s losses with the metal up 1.4% to $52.17 today after a high of $52.221, holding below resistance at $52.386. It began to correct yesterday on expectations of the London market normalising in coming weeks after liquidity issues.
• Silver is also nervous about US import duties if a review finds that it is a critical mineral.
• Risk appetite has improved with stronger equities and AUD. The S&P e-mini is up 0.2%, Hang Seng +1.3% but CSI 300 flat. Oil prices are slightly lower with WTI -0.2% to $58.60/bbl. Copper is down 0.2%.
• Later the Fed’s Miran, Waller and Schmid speak and the Beige book is released. The ECB’s de Guindos, Buch and Donnery, and BoE’s Breeden and Ramsden also appear. US October Empire manufacturing and August euro area IP print.