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The Overnight Report: Moderation

Published 01/12/2022, 11:06 am
Updated 09/07/2023, 08:32 pm


So shocked by yesterday’s October CPI numbers was RBA deputy governor Michele Bullock that she said it will take time to “figure out what is the noise and what is the information” in the series.

The headline CPI came in at 6.9%, down from September’s 7.3% and well below a forecast of 7.6%. Core inflation was 5.3%, down from 5.4% and below a 5.9% forecast. We recall the RBA is forecasting an 8% headline by year-end.

We also recall that the September quarter began with a fall in CPI, only to be followed by two months of gains. So no one’s getting too excited. Not at the RBA anyway.

The market was rather excited yesterday though.

The futures had suggested down one point at the open but the ASX200 fell -30 as local bond yields climbed ahead of the CPI. Then came the shock. The index closed up 30 points and the ten-year closed down -7 points at 3.51%.

Real estate (+1.3%), technology (+1.0%) and to a lesser extent industrials (+0.6%) enjoyed the prospect of a potential RBA pause. The banks didn’t share the excitement (-0.2%).

It was the second day in a row the local market has spun on a dime mid-session. On Tuesday it was all about property market stimulus and vaccinations in China. Yesterday it was all about domestic monetary policy. But yesterday the China story still had legs as well.

Materials rose 1.3% and energy 1.8%. Lithium and coal miners went nuts again.

So, is the surprise fall in the CPI enough for the RBA to decide to go on summer holiday early? To not raise at all next week?

It is possible but unlikely. Bear in mind the first cut of only 25 points in October was a surprise, as 50 had been baked in by the market. There was still some question over November, but while 50 was a possibility it was 25 again. The RBA has already slowed, and as Ms Bullock has indicated, one swallow does not a summer make.

Moreover, the RBA will be forced to pause in January, as there is no meeting in January.

By next Tuesday the RBA will have learnt the results of the component data that make up the GDP, but the GDP itself is out on Wednesday. Maybe if those numbers are weaker than expected…

The other factor to consider are the recent floods. They did not occur until November, and have pushed up food prices. Food prices do not, nevertheless, affect the core rate.

All the Way with Jay

“The time for moderating the pace of rate increases may come as soon as the December meeting.”

Ring the bells! Pop the corks! Deck the halls with boughs of holly! Who would ever have even contemplated the Fed would only hike by 50 points this month?

Well, everyone actually. For quite some time in fact. Even the last week’s barrage of Fedspeak on average implied such. The US bond market has long been considered the adult in the room. The US ten-year yield fell -5 points to 3.70%. The stock market is the crazy cousin.

You’d be forgiven for thinking Powell has just made the biggest about-face, turnaround, backflip in monetary policy history.

As one commentator noted on CNBC last night, you know it’s a bear market rally when the Nasdaq jumps 3%. It ultimately closed up 3.7%. If this was twelve months ago and the Fed had hiked 50 points, Wall Street would have crashed.

Jerome Powell did put a caveat on his above pronouncement. The pace might slow from now but the peak rate will be held for longer. And don’t even think about any rate cut.

There were nevertheless some data releases to support a less hawkish Fed last night.

Job openings fell to 10.3m in October from 10.7m in September, suggesting the labour market is cooling. The ADP private sector jobs report for November showed only 127,000 jobs added when forecasts were for 190,000.

The Fed Beige Book found many businesses expressed “greater uncertainty or increased pessimism” about the outlook toward the end of the year.

But the September GDP result was revised upward to 2.9% from 2.6%.

If the data continue to be stronger than expected, such as the GDP, that implies ongoing Fed aggression, which is bad for the stock market. If the data start to come in weaker now, that suggests recession, which is bad for the stock market.

The S&P500 is now back at the top of the 2022 downtrend line, which it had reached in March before crashing into June, and reached again in August before tumbling into October.

Tonight we get October PCE inflation, and tomorrow night November jobs. Powell has said it might be time for a pause, but we best get these two data points out of the way first.

The November CPI result is out on December 13, and the next Fed statement is due on December 14.


China and the US have provided a double-whammy for commodity prices. Powell has sent the US dollar down -0.9%.

That’s also sent the Aussie up a full 1.7% to US$0.6800.


The SPI Overnight closed up 51 points or 0.7%.

Locally today we’ll see September quarter private sector capex, following yesterday’s construction work done, which showed a 2.2% rise quarter on quarter.

We’ll also see November house prices.

November manufacturing PMIs will be released across the globe.

The US will see October PCE inflation.

Pendal Group Ltd (ASX:PDL) and Technology One Ltd (ASX:TNE) go ex.

"The Overnight Report: Moderation" was originally published on and was republished with permission.

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