Welcome to Markets 4x4, post delivered daily by 4pm in Sydney detailing the key macro themes from the Asian session.
Here’s what you need to know for Wednesday, October 25.
Australia inflation too hot to ignore
Australia’s Q3 inflation report was hot, sticky and unpleasant if you’re a fiscal or monetary policymaker, exhibiting many of the characteristics seen in other advanced economies beforehand. The key trimmed mean inflation measure jumped 1.2% over the quarter and 5.2% over the year, a “material” 0.3 percentage points above what the RBA expected. I use the word specifically given RBA Governor Michele Bullock warned before the data that she will not hesitate to raise the cash rate further if there was a material upward revision to the inflation outlook.
While it’s not the only parameter that goes into the bank’s forecasts, the upside surprise was material and will likely tip the RBA to hike when it meets on November 7. Markets agree, assigning a 60% probability of a 25 basis point increase, talking the cash rate to 4.35%.
Another “meh” to more China stimulus
Cuts to policy rates, state support to prop up its property and stock markets and now a cool ¥1 trillion boost to bond issuance to underpin economic activity. China has been doling out the stimulus measures on an almost weekly basis for months, yet markets are anything but excited. Take today as a prime example. Yes, we saw the traditional rally in bulk commodity futures and listed infrastructure names, but other than that boarder Chinese markets don’t really seem to care, outside the Hang Seng which we’ll get to in a second.
Bluechip names meandered higher while the Chinese yuan remained pressured. Outside China, the rally in the Australian dollar was undoubtedly blunted by the unenthusiastic response while crude prices could barely muster a bid after the drubbing of recent days. If the Chinese government was hoping to bolster confidence, this wasn’t it.
Something is up with Japanese bonds
US 10 and 30-year Treasury yields may have eased around 20 basis points from Monday’s highs, but someone forgot to tell the Japanese Government Bond (JGB) market. Japanese yields over the same tenors have barely budged over recent days, feeding into speculation the Bank of Japan (BJJ) may have a surprise cooking for its October monetary policy meeting, scheduled to conclude on the 31st. If you’re looking for an obvious near-term catalyst that could see global yields retest their highs, this event is it. If there is to be a change to the bank’s yield curve control program, the BOJ may use the media to soften up markets beforehand. Keep an eye out for thought balloons from unnamed sources.
Hong Kong Hang Seng set to feel the churn
Hong Kong leader John Lee was a semi-permanent feature on the hot headlines today, announcing a string of measures during his annual policy statement address. While most were sweeping statements that are hard to quantify, one that did catch the eye was a reduction in stamp duty fees for stock transactions on the HKSE. 3 basis points were lopped off the tax, taking it to 10 basis points.
While it may encourage more churn, it’s no guarantee to spark a bull market. Just ask mainland policymakers who made a did something similar months ago only to see mainland equities plumb new lows earlier this week.
Market of the day: China A50
Following on from the latter point, why not look at the China A50 share index. There’s no beating around the bush: it’s pretty ugly for China’s largest blue chips, showing little sign of bullish momentum despite the support measures opened today.
Support is located at the 2020 low of 11570 and again at the 2022 nadir of 11160. On the topside, 11810, 12040 and 12400 are the levels to watch. RSI and MACD are signaling momentum remains to the downside.
-- Written by David Scutt
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