Market Update
Global markets continue to slowly price in an economic recovery and yields in the US bond markets continue to increase with the US 10y Treasury note moving closer to 2% which is a three-months high. Markets currently pricing in a zero chance of easing by the Federal Reserve at the December meeting and the outlook for a terminal rate stands around 1.35% (the official Fed Fund rate currently stands at 1.63%).
Our rates followed the global trend with the 3y Government bond yield moving closer back to 1% and the 10y bond moving as high as 1.35% (had a low of 0.87% back in October). This move together with the aggressive cutting of the cash rate by our RBA has helped to normalise our yield curve with short term rates now lower again than the long-term rates. A positively sloped yield curve is usually a good indicator for a positive growth outlook.
Our export sector in the meantime continues to positively surprise as evidenced by the report that our trade surplus had widened again with a record $ 7.18 billion in September which was $ 563 million higher than the record in August. This of course was helped by the weak A$ which continue to hover around A$0.69 against the US$.
The Australian consumer however continues to be careful despite the residential property market coming alive again with auction clearance rates on the weekend showing strong signs.
New Zealand’s central bank may cut interest rates to a fresh record low as it seeks to boost economic growth and revive inflation, although its final review of the year is proving hard to predict. A majority of economists are expecting the Reserve Bank of New Zealand to cut the official cash rate by 25 basis points to 0.75% on today. Investors were pricing a 60% chance of a cut late Monday according to swaps data. The RBNZ must weigh recent signs of stabilization in both the domestic and global economies against its concern that growth is too weak to get inflation back to the middle of its 1-3% target. Having shown a willingness to act sooner rather than later, the committee can be considered more likely to pull the trigger than hold fire.
High temperatures and strong winds are expected to fan more fires burning across the country with authorities warning that embers could be blown 30 kilometres from the numerous fire fronts and trigger more outbreaks. Sydney is facing a “catastrophic” fire danger this week with the highest warning level that’s ever been issued for Australia’s largest city. As the country’s bushfire season becomes longer and more intense, the threat to lives and homes across the nation has grown.
From everyone here at the ABX please take care and be stay safe. We will continue to give as much support as we can to the brave firefighters and encourage anyone to do the same, celebrating Australian comradery!