Morning Report

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Key themes: US equities finished lower on the eve of the US Presidential election. With limited data flow, markets reacted to recent polls showing Vice President Harris was gaining ground in an extremely tight contest. The unwinding of trades that would benefit from a Trump victory saw yields decline across the curve. The US dollar index was also lower on the back of lower yields.

The Aussie was higher in a volatile session ahead of the RBA Board's decision later today. Rates are widely expected to remain on hold, the focus will be on any shifts in guidance and forecasts. A clear move to a more neutral bias is likely to see Aussie come under pressure.

Oil jumped higher while iron ore also recorded gains.

Share markets: With limited data flow, investors remained on the sidelines ahead of the Presential election.

Given the closeness of contest, the outcomes of the election may take longer than usual to land, further adding to uncertainty and market volatility. Indeed, the VIX index has increased over recent sessions and remains elevated.

As a result, we saw the Dow Jones finished 0.6% in the red. The broad-based S&P 500 fell 0.3% and the tech-heavy Nasdaq closed 0.3% lower.

European stocks followed the lead from the US and closed lower. The Euro Stoxx 50 closed 0.5% in the red, the DAX was 0.6% lower and the FTSE 100 finished broadly unchanged.

The ASX200 index started the week off strongly, finishing 0.6%in the green after losing ground last week. Nine of the eleven sectors finished in the green, led by financials stocks. Futures are pointing to falls in early trade this morning.

Interest rates: US bond yields were lower across the curve as investors unwound the so-called Trump trades. The US 2-year bond yield declined 3 basis points to 4.17%, after reaching a low of 4.13% during the session. The 10-year bond yield declined to a low of 4.26% before selling 8 basis points lower at 4.30%.

Markets have fully priced in a rate cut this week. The chances of a rate cut in December are sitting at around 83%, with the market pricing in around 120 basis points of cuts by the end of 2025.

Bond yields were also lower across Europe. The Glit market firmed with the 10-year Gilt increasing 2 basis points to 4.46%. The 2-year Glit was broadly unchanged at 4.43s%.

Australian yields were higher ahead of the RBA Board's policy announcement later today. The 3-year futures yield was 6 basis points higher at 4.09%, while the 10-year futures yield was 3 basis point higher at 4.60%. Markets are pricing virtually no chance of a move today. The first full rate cut is now expected by May 2025, with around 50 basis points of cuts expected over 2025.

Foreign exchange: The US dollar index declined 0.4% on the back of lower yields. The DXY traded between a low of 103.576 and a high 103.969. The outcome of the Fed's November meeting (plus forward guidance) and the presidential race will drive moves this week.

The Aussie gained 0.4% against the Greenback, reaching a high of 0.6617 before trading lower in a volatile session. Near term moves in the AUD/USD pair will be determined by the RBA Board's guidance and the outcome of the US election. A clear move to a more neutral bias and a clear Trump victory is likely to see Aussie come under pressure.

The British pound started the week off on a positive note, gaining 0.3% after the sharp falls recorded last week. Markets have prices in an 92% chance of a rate cut when the BoE meets later this week.

The Japanese Yen was higher, with the USD/JPY (-0.6%) trading at around 152.15 per US dollar.

Commodities: Oil jumped on the back of the lower US dollar and OPEC's announced delays to increases in output. The West Texas Intermediate (WTI) futures increased 3.3% to be trading at US$71.75 per barrel.

Industrial metals were generally higher also due to the softer US dollar and expectations of China stimulus helping sentiment. Aluminium is up 0.8% to $2,621 while copper is up 1.1% to $9,676.

Iron ore was higher ahead of expected stimulus to emerge from the National People's Congress Standing Committee meeting which continues through the week. Iron ore futures were trading 1.7% higher at around US$104.05 a tonne in Singapore.

Australia: The Melbourne Institute's inflation gauge rose 0.3% in October, after a 0.1% increase in September. It was the highest monthly read since the month of July. In annual terms, the inflation gauge was 3.0% higher, a step up from the 2.6%yr recorded last month. The acceleration in part reflects an unwind of the first instalment of the Federal government's electricity rebates.

The Indeed Job Ads index rose 0.3% in October, following a 2.3% gain in the month of September. This was the second consecutive monthly increase in ads, possibly reflecting Christmas-related hiring.

Eurozone: Manufacturing PMIs for October confirmed that activity in the sector continued to contract last month. The headline index increased by 1pt to 46.0, a level matching this year's average. Germany remained the main source of weakness - its index was revised slightly higher but was still at only 43.0, broadly in the middle of this year's range. French (44.5) and Italian (46.9) manufacturing PMI surveys were also disappointing. Meanwhile, Spanish manufacturing PMI suggested that activity picked up at the beginning of Q4, with the headline index there rising by 1.5pt to 54.5, the highest level since early 2022.

United States: Durable goods orders were down 0.7%mth in September, a slightly less steep rate than the initial estimate had suggested. Excluding transportation where workers strike at Boing disrupted production, durable orders rose 0.5%mth, also a touch higher rate than in the first release, to leave annual growth at a five month-high of 1.1%yr. Meanwhile, growth in total orders excluding transportation was close to zero on the monthly and annual basis at 0.1%mth and -0.3%yr.