The NZD is the strongest and the AUD is the weakest as the NA session begins

As a North American session begins, the NZD and the AUD is the weakest.The USD is mixed with modest changes with the exception of a 0.36% gain vs the AUD and a -0.31% loss vs the NZD in the morning snapshot.

The RBNZ kept rates unchanged at 5.5%. Adrian Orr, in his comments, emphasized the Reserve Bank’s firm stance on maintaining interest rates through the next year, while acknowledging an upward bias in rate projections, though not definitively. Orr highlighted that the risk to inflation remains predominantly on the upside. The decision to raise rates was discussed at the meeting, with a thorough debate on the topic. There’s concern over inflation being outside the target band for an extended period and the creeping up of long-term inflation expectations. Global interest rates are a significant factor for their decisions. Orr mentioned that a decision on debt-to-income restrictions would be made early next year. He noted the rapid slowing of credit growth and reiterated that high rates are likely to persist, advising banks to take note. The Reserve Bank is not restricted to policy meeting dates and is prepared to respond to economic shocks as needed. Currently, they are comfortable waiting until the February meeting, with domestic inflation, particularly dwelling costs, being a major concern.

Westpac’s response to the Reserve Bank of New Zealand’s (RBNZ) recent stance includes a few key points. The RBNZ has adopted a more hawkish outlook regarding future economic prospects, indicating the possibility of further increases in the Official Cash Rate (OCR) in 2024. This suggests that an easing of monetary policy might not occur until sometime later. The RBNZ revised its projections for the OCR, increasing the peak forecast to 5.69% by September 2024, which suggests a 75% likelihood of an additional 25 basis points rate hike. A gradual easing of policy is expected from the first half of 2025. Additionally, the long-run neutral OCR has been adjusted upwards by 25 basis points to 2.5%. This adjustment and the hawkish stance imply that more tightening might be necessary to ensure inflation returns to the target promptly.

Yesterday, Fed’s Waller – getting in some last words before the Fed goes into the blackout period ahead of their December rate meeting – indicated that the U.S. central bank’s monetary policy is effectively positioned to reduce inflation. Speaking at a think tank, Waller, typically seen as a hawkish figure at the Fed, observed that inflation trends are aligning with his expectations. Notably, October saw a significant slowdown in headline inflation to 3.2%, primarily due to falling gas prices. Waller suggested that if inflation continues to descend towards the Fed’s 2% target over the next few months, the Federal Reserve might begin to lower interest rates. He expressed that there’s no need to maintain exceptionally high policy rates.

His remarks have raised expectations that the Fed might initiate rate cuts in the coming year, with some market participants anticipating a reduction as early as May.

Geman inflation came out weaker than expected at -0.4% vs -0.1% expected with the preliminary CPI YOY also lower at 3.2% vs 3.5%. The EU will release their inflation reading tomorrow at 5 AM ET.

US stocks are higher in pre-market trading. US yields are lower. Crude oil prices are higher as talks between OPEC+ countries continue ahead of their meeting tomorrow.

A snapshot of the markets to kickstart the North American session shows:

• Crude oil is trading up $1.38 or 1.79% at $77.78. Yesterday at this time, the price was trading at $75.66
• Spot gold is trading up $0.52 or 0.03% at $2041.41. Yesterday at this time, the price was trading at $2015.41
• Spot silver is trading up down $0.03 or -0.13% at $24.97. Yesterday at this time, the price was trading at $24.67
• Bitcoin is trading higher at $38,250. Yesterday at this time, the price was trading at $37,254

In the US stock market, the major indices are implying a mixed opening:

• Dow Industrial Average is trading up 122 points. Yesterday, the index rose by 83.51 points or 0.24% at 35416.99
• S&P index is trading up 22 points. Yesterday, the index rose by 4.46 points or 0.10% at 4554.90
• NASDAQ index is up 107 point Yesterday, the index rose by 40.73 points or 0.29% at 14281.76

In the European equity markets, the major indices are trading mixed/mostly lower:

• German DAX, 0.97%
• France’s CAC, 0.46%
• UK’s FTSE 100, -0.03%
• Spain’s Ibex, +0.69%
• Italy’s FTSE MIB, 0.87% (10 minute delay)

In the US debt market, yields are trading lower:

• US 2Y T-NOTE: 4.668% -6.8 basis points.. The level from this time yesterday was at 4.872%
• US 5Y T-NOTE: 4.228% -5.8 basis points. The level from this time yesterday was at 4.396%
• US 10Y T-NOTE: 4.289% -4.6 basis points. The level from this time yesterday was at 4.392%
• US 30Y BOND: 4.486% -3.7 basis points. The level from this time yesterday was at 4.536%
• 2 – 10-year spread closed at -40.3 basis points. The level from this time on Friday was at -47.9 basis points
• 2 – 30 year spread closed at -22.1 basis points. The level from this time on Friday was at -33.8 basis points

In the European debt market, benchmark 10-year yields are trading mixed: