Market Briefing: Trump trade kicking into gear
Trump trade. Post US election repricing continues. US yields rose. Widening yield spreads are pushing up the USD. AUD on the backfoot.
US data. Trump policy agenda is USD supportive. Data wise, US CPI due tonight. Sticky core inflation could add to the USD's upswing.
Local news. Consumer sentiment improved. Business conditions holding up. Q3 wages due today. Monthly jobs report out tomorrow.
The post US-election repricing in markets extended overnight with participants continuing to factor in what the Trump policy mix of trade-tariffs, greater fiscal spending, and steps to curb US immigration will mean for the outlook. Reports over the past few days about who President Trump may appoint to posts such as the US Trade Representative, Treasury Secretary, and other key jobs has been a shot across the bow for those thinking his campaign rhetoric was hot air. Several of the names being mentioned are at the ‘hawkish’ end of the spectrum for the various roles. While US equities consolidated the S&P500 (-0.2%) remains near record highs and it again outperformed other regions. Stock markets across Europe fell by ~1.2-2.7%, with another soft session also recorded in Asia yesterday (China CSI300 -1.1%) as concerns about China’s growth momentum linger. This also exerted more pressure on base metals with copper shedding ~2.5% and iron ore slipping towards ~US$100/tn.
Elsewhere, bond yields rose as the potential inflation risks and relatively higher path forward for interest rates is baked in. The US 2yr yield increased ~9bps to ~4.34% (a high since early-August) as expectations about the Fed’s easing cycle continue to be pared back. The benchmark US 10yr yield (+13bps to ~4.44%) is approaching its post-election multi-month highs. The widening yield spreads in the US’ favour has seen the USD add to its gains. The USD index is ~0.5% from its 2024 peak with EUR tumbling towards ~$1.06 and the interest rate sensitive USD/JPY rising to ~154.70. GBP has also been on the backfoot (now ~$1.2737) after the latest jobs report showed cracks in the UK labour market are widening (UK unemployment edged up to 4.3%). The stronger USD backdrop has pushed up USD/SGD (now ~1.3393) and weighed on the NZD (now ~$0.5924) and AUD (now ~$0.6532).
The recent market moves, particularly in the USD, are inline with our thinking that pricing in of the Trump policy agenda, coupled with possible downward revisions to global growth, and added geopolitical uncertainty should be USD positive and help it stay stronger for longer (see Market Musings: Trump 2.0 & the AUD). As our chart shows, the appreciation in the USD has so far been on par with what occurred post the 2016 Trump win. The US economic release calendar heats up over coming days with CPI inflation (tonight 12:30am AEDT), US retail sales (Fri night AEDT), and a speech by Fed Chair Powell (Fri morning AEDT) on the radar. In our opinion, signs US retail spending/consumption is holding up, a lack of further improvement in core inflation, and/or comments by Chair Powell that the Fed isn’t on autopilot and future policy changes will be data-driven may generate even more USD support.
Global event radar: US CPI (Tonight), Fed Chair Powell Speaks (Fri), China Data (Fri), US Retail Sales (Sat), Japan CPI (22nd Nov), Global PMIs (22nd/23rd Nov), RBNZ Meeting (27th Nov), EZ CPI (29th Nov)
AUD corner
The AUD has continued to drift lower with the shaky risk environment and stronger USD stemming from the pricing in of the Trump policy agenda in the driver’s seat. At ~$0.6532 the AUD is down around last week’s post US election low, and ~1.5% under its ~1-year average. That said, as has been the case recently, it hasn’t been one-way traffic. The AUD has consolidated versus the EUR (now ~0.6155), CNH (now ~4.7322) and NZD (now ~1.1025) over the past 24hrs, and ticked up against the JPY (now ~101.05) and GBP (now ~0.5129).
Locally, monthly sentiment surveys were released yesterday. Consumer confidence improved again in November with the overall index at its highest since April 2022. This is an encouraging sign for household spending, and aligns with easing in the cost of living squeeze and still buoyant labour market. Business conditions are also holding up with the index close to its long-run average. Within that hiring intentions are positive, and forward orders (a leading indicator for private demand) improved. The easing in capacity utilization suggests unemployment may nudge up a bit over the next year, but it is likely to be a gentle upturn as employment growth fails to keep pace with the expanding population rather than outright job losses.
Today, Q3 wages are due (11:30am AEDT). Wages are a driver of services/core inflation. Base effects related to last year’s bigger increase in award/minimum wages should see annual growth slow (mkt from 4.1%pa to 3.6%pa). But this shouldn’t be a surprise for the RBA. Rather it is likely to be monitoring the labour market report (Thurs AEDT) to help assess inflation risks. In our opinion, based on the still high level of activity across labour intensive service providing sectors, another solid month of job gains may be on the cards (mkt +25,000) with the unemployment rate also predicted to hold steady at ~4.1%. The resilience in the labour market is a factor underpinning our long-held assessment that the RBA will lag its global counterparts in terms of when it kicks off and how many steps it takes during the easing cycle. We continue to believe that the start of a gradual/modest RBA rate cutting phase is a story for H1 2025.
While we believe the evolving positive USD dynamics should constrain the AUD’s medium-term upside (i.e. we now see the AUD hovering in the mid-$0.60s over the next year), we don’t feel it is likely to sustainably fall much below recent lows. For one, a degree of ‘bad news’ already looks factored in given the AUD is trading ~3-4 cents below our ‘fair value’ estimate. Moreover, FX is a relative price and several factors remain in the AUD’s favour when it comes to AUD-crosses. Over time we think the diverging policy trends between the RBA and other central banks should help the AUD outperform EUR, CAD, NZD, CNH, and GBP. This can counteract a stronger USD.
AUD event radar: AU Wages (Today), US CPI (Tonight), AU Jobs (Thurs), Fed Chair Powell Speaks (Fri), China Data (Fri), US Retail Sales (Sat), RBA Gov. Bullock Speaks (21st, 28th Nov), Japan CPI (22nd Nov), Global PMIs (22nd/23rd Nov), RBNZ Meeting (27th Nov), EZ CPI (29th Nov)
AUD levels to watch (support / resistance): 0.6450, 0.6500 / 0.6580, 0.6630
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (13th November)
USD Fed’s Harker Speaks (9am)
USD Fed’s Barkin Speaks (9:30am)
AUD Wage Price Index (Q3) (11:30am)
GBP BoE’s Mann Speaks (8:45pm)
EUR Industrial Production (Sep) (9pm)
THURSDAY (14th November)
USD CPI Inflation (Oct) (12:30am)
USD Fed's Kashkari Speaks (12:30am)
USD Fed's Williams Speaks (1:30am)
USD Fed’s Musalem Speaks (5am)
USD Fed’s Schmid Speaks (5:30am)
AUD RBA Gov. Bullock Speaks (10am)
AUD Jobs Report (Oct) (11:30am)
EUR GDP (Q3 P) (9pm)
USD Fed's Kugler Speaks (11pm)
EUR ECB Meeting Minutes (11:30pm)
FRIDAY (15th November)
USD PPI Inflation (Oct) (12:30am)
USD Initial Jobless Claims (12:30am)
USD Fed’s Barkin Speaks (1am)
EUR ECB’s Schnabel Speaks (5:30am)
USD Fed Chair Powell Speaks (7am)
GBP BoE Governor Bailey Speaks (8am)
USD Fed’s Williams Speaks (8:15am)
JPY GDP (Q3 P) (10:50am)
AUD RBA’s Jones Speaks (11:30am)
CNY Industrial Production (Oct) (1pm)
CNY Retail Sales (Oct) (1pm)
CNY Fixed Asset Investment (Oct) (1pm)
GBP GDP (Q3 P) (6pm)
EUR EU Commission Forecasts (9pm)
SATURDAY (16th November)
USD Retail Sales (Oct) (12:30am)
USD Industrial Production (Oct) (1:15am)
EUR ECB’s Lane Speaks (2am)
*Note, all times/dates provided are AEDT
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