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RBA maintained its cash rate at 4.35% today, as expected, while underscoring that inflation risks remain a concern. In its statement, RBA noted that although headline inflation has declined and is projected to stay lower in the short term, it considers underlying inflation as "more indicative" of inflation trends, and this measure remains "too high."

In line with this cautious approach, the emphasized the need to remain “vigilant to upside risks to inflation,” signaling flexibility by reiterating that it is "not ruling anything in or out." The ’s latest economic projections offer a more tempered outlook, with slight downward adjustments to growth and inflation forecasts, pointing to persistent caution amid moderated expectations.

Key revisions in the RBA’s projections include:

• Year-average GDP growth: 2024 unchanged at 1.2%, but lowered for 2025 from 2.5% to 2.2% and for 2026 from 2.4% to 2.3%.
• Year-ended CPI: Forecast for December 2024 is revised down from 3.0% to 2.6%, with December 2025 held steady at 3.7%, and December 2026 slightly reduced from 2.6% to 2.5%.
• Trimmed mean inflation: Forecast for December 2024 lowered from 3.5% to 3.4%, with additional downgrade for December 2025 from 2.9% to 2.8%, and December 2026 from 2.6% to 2.5%.

These adjustments reflect an outlook of moderated economic growth and slightly eased inflation pressures. However, RBA’s flexible stance indicates it is prepared to act if inflation risks become more pronounced, balancing economic stability with its inflation objectives.

Full RBA statement here.

Full RBA SoMP here.

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.

Underlying inflation remains too high.

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Headline inflation was 2.8 per cent over the year to the September quarter, down from 3.8 per cent over the year to the June quarter. This was as expected due to declines in fuel and electricity prices in the September quarter. But part of this decline reflects temporary cost of living relief. Abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5 per cent over the year to the September quarter. This was as forecast but is still some way from the 2.5 per cent midpoint of the inflation target. The forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.

The outlook remains highly uncertain.

The forecasts published today are very similar to those published in August. The forecast path for underlying inflation reflects a judgement that aggregate demand remains above the economy’s supply capacity, evidenced by the persistence of underlying inflation, surveys of business conditions and ongoing strength in the labour market.

Growth in output has been weak. Past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption. However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.

A range of indicators suggest that labour market conditions remain tight, and while conditions have been easing gradually, some indicators have recently stabilised. Employment grew strongly over the three months to September, by an average of 0.4 per cent per month. The unemployment rate was 4.1 per cent in September, up from the trough of 3.5 per cent in late 2022. But the participation rate remains at record highs, vacancies are still elevated and average hours worked have stabilised. At the same time, some cyclical measures of the labour market including youth unemployment and underemployment have recently declined.

Wage pressures have eased somewhat but labour productivity is still only at 2016 levels, despite the pick-up over the past year.

Taking account of recent data and the updated forecasts, the Board’s assessment is that policy is currently restrictive and working broadly as anticipated. But there are uncertainties. The central projection is for growth in household consumption to increase from the second half of this year as income growth picks up – and there is tentative evidence of an increase in spending in the September quarter. But there is a risk that any pick-up is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market. More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes at a time of excess demand, and while conditions in the labour market remain tight.

There remains a high level of uncertainty about the outlook abroad. Most central banks have eased monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets. They note, however, that they are removing only some restrictiveness and remain alert to risks on both sides, namely weaker labour markets and stronger inflation. Public authorities in China have responded to the weak outlook for economic activity by implementing more expansionary policies, although the impact (and in some cases the specific details) of these measures remains to be seen. Geopolitical uncertainties remain pronounced.

Sustainably returning inflation to target is the priority.

Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint. This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.

The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Key Highlights

• WTI Crude Oil price started a recovery wave from the $67.00 zone.
• It broke a key bearish trend line with resistance at $70.60 on the 4-hour chart.
• EUR/USD could struggle to recover above the 1.0920 resistance.
• GBP/USD faces hurdles near the 1.3020 resistance.

WTI Crude Oil Price Technical Analysis

WTI Crude Oil price extended losses below $70.00 before the bulls appeared. It tested $67.00 and recently started a recovery wave.

Looking at the 4-hour chart of XTI/USD, the price recovered above the $69.20 and $70.00 resistance levels. There was a move above the 61.8% Fib retracement level of the downward move from the $72.9 swing high to the $67.08 low.

Besides, it broke a key bearish trend line with resistance at $70.60 on the same chart. The price even attempted a close above the 100 simple moving average (red, 4-hour) and the 200 simple moving average (green, 4-hour).

On the upside, it faces resistance near the $72.80 level. The next major resistance is near the $74.15 zone. It is close to the 1.236 Fib extension level of the downward move from the $72.9 swing high to the $67.08 low, above which the price may perhaps accelerate higher.

In the stated case, it could even visit the $76.20 resistance. Any more gains might call for a test of the $78.50 resistance zone in the near term.

On the downside, the first major support sits near the $70.00 zone. A daily close below $70.00 could open the doors for a larger decline. The next major support is $68.50. Any more losses might send oil prices toward $67.00 in the coming days.

Looking at EUR/USD, the pair is consolidating losses above the 1.0800 zone and faces many hurdles near the 1.0920 zone.

Economic Releases to Watch Today

• US S&P Global Services PMI for Oct 2024 – Forecast 55.3, versus 55.3 previous.
• US ISM Manufacturing Index for Feb 2024 – Forecast 53.8, versus 54.9 previous.

China's Caixin Services PMI rose to 52.0 in October, surpassing expectations of 50.5 and marking the highest rate of growth in three months. The services sector continues its expansionary streak that began in January 2023. PMI Composite also increased from 50.3 to 51.9, its highest level in four months, maintaining expansion for the 12th consecutive month, driven largely by service-sector resilience.

Wang Zhe, Senior Economist at Caixin Insight Group noted that challenges noted that a range of supportive policies has since been introduced by the Politburo since September. The recent Caixin PMI readings for both manufacturing and services suggest that “market demand stabilized and optimism improved,” signaling early effects of the new policies.

Full China Caixin PMI services release here.

• WTI reversed from long-term support level 66.75
• Likely to rise to resistance level 75.00

WTI crude oil recently reversed up from the long-term support level 66.75 (which has been reversing the price from the end of 2021), standing near the lower weekly Bollinger Band.

The upward reversal from the support level 66.75 continues the weekly upward impulse wave (3), which also started from the same support level in September.

Given the strength of the support level 66.75, WTI crude oil can be expected to rise to the next resistance level 75.00 (former strong resistance from October).

• EURCAD reversed key resistance level 1.5160
•  Likely to fall to support level 1.5100

EURCAD currency pair recently reversed down from the key resistance level 1.5160 (which has been steadily reversing the price from the start of August as can be seen below), strengthened by the upper daily Bollinger Band.

The downward reversal from the resistance level created the daily Japanese candlesticks reversal pattern Dark Cloud Cover – which marked the end of the previous ACB correction 2.

Given the strength of the resistance level 1.5160 and the overbought daily Stochastic, EURCAD currency pair can be expected to fall to the next support level 1.5100, the former resistance from October.

Markets

US presidential election polls remain talk of town in an otherwise uninspiring trading session. Trump’s momentum was already dented last week following some swing-state polls. They took away his narrow lead in prediction models, putting both candidates at exactly 50%. Focus today switched to an Iowa survey which put Harris ahead in the hawkeye state won by Trump on the previous two occasions. The result is an outlier when compared to other Iowa election polls. Anyway, the resulting market volatility is the one we simply have to deal with on the eve of the potentially closest US presidential elections since 2000. In a so far one-off reset at the start of Asian trading (thinned by the way by Japan’s public holiday), US yields succumb 7 bps (2-yr) to 11 bps (10-yr). German yields changes range between +3 bps (2-yr) and -3 bps (30-yr) as EMU money markets continue paring 50 bps rate cut bets for December following last week’s Q3 GDP and October CPI data. The dollar faced a setback with the trade-weighted greenback currently changing hands around 103.75 compared with Friday’s close at 104.35. EUR/USD spends time around the 1.09 big figure and even USD/JPY gets some more breathing space (152). Sterling trades volatile around 0.84 awaiting the Bank of England’s interpretation of last week’s 2025 Budget. Upward growth and CPI forecasts are expected to tie the BoE’s hands for somewhat longer in the policy normalization cycle. Any indications to endorse BoE governor Bailey’s proposed activism could tip the balance again in sterling’s and UK Gilt’s disadvantage.

Belgian OLO’s slightly outperform against French OAT’s today. The move feels counterintuitive at first given that NVA De Wever handed in his resignation with the King as “formateur” in deadlocked federal government coalition talks (almost 5 months since ballot). Flemish centre-left socialists of Vooruit are getting cold feet about entering a centre-right government (ARIZONA: Christian democrats (CD&V and Les Engagés), French speaking Liberals MR, Flemish rightwing NVA) aiming to tighten fiscal policy. The King didn’t accept the resignation (yet), giving De Wever an additional week to find common ground or an alternative. Replacing Vooruit by Flemish Liberals of OpenVLD is a route suggested by other party leaders. OpenVLD got slaughtered in elections, opting for a time in opposition. Joining (or backing) the ARIZONA-government would give the smallest of majorities (76/150) and be extremely fragile but in any case reform-minded. Flemish parties should then be willing to give away their relative majority with the government. There’s little appetite for a fresh ballot, especially on the French-speaking side as election winning MR and Les Engagés failed to hold momentum into October local elections. They don’t want to risk bringing back the socialists of PS into the equation.

News & Views

The Turkish disinflation process proceeds at a slower than expected pace. Headline inflation in October ‘eased’ to 2.88% M/M and 48.6% Y/Y compared to 2.97% M/M and 49.4% in September. In a month-on-month perspective, price rises were mainly driven by a higher prices for clothing and footwear (+14.32 %) and food and non-alcoholic beverages (4.33%). Transportation costs declined 0.54% M/M. In a Y/Y comparison, a 93.66% rise in prices for education and 89.39% rise in housing costs are catching the eye. Core inflation (excluding food, energy and gold) printed at 2.79% M/M and 47.75% Y/Y, close to expectations. At the September policy meeting, the CBRT kept its policy rate unchanged at 50%, but turned more cautious on the room for policy easing after higher than expected September inflation. Later this week governor Karahan presents a new CBRT quarterly inflation report, which will be key for markets to assess the timing of a first rate cut. Higher than expected September and October inflation has reduced chances for a start of the easing cycle in December (or even January).

German companies turned more cautious on their personnel planning, according to the IFO employment barometer which declined from 94 in September to 93.7 in October, the weakest level since July 2020. In a comment on the IFO website, the head of IFO surveys analyses that “the situation in the labour market has been on a negative trend for months, not sharply, continuously”. Rather than filling vacancies he assumes that companies are more likely to lay off employees. The index for manufacturing dropped again as fewer employees are needed due to the difficult order situation. A similar narrative holds for trade, but the indicator rose slightly. Regarding service providers, positive and negative responses are reported almost in balance. The same applies to construction. The IFO survey still sees demand for new employees in tourism and the IT sector.

• The world is preparing for the November 5 US presidential election
• Voting times vary across states but the focus will be on seven key states
• Candidates need to win most of these swing states to secure victory
• “Safe” states will be called quickly but the final result might be delayed for days

The countdown to the US presidential election is almost finished, with the polls opening on Tuesday. Market participants have been speculating about the economic agendas of both candidates for a while, trying to discount the likely market impact on the key asset classes. Putting the market analysis aside, the focus of this report is on the procedural aspect of November 5.

What is at stake on November 5?

Apart from the US presidency, with the new President officially taking over on January 20, 2025 when Inauguration Day occurs, 435 members of the House of Representative and 33 Senators will be elected. It is critical for the new president to have the support of the Congress in order to be able to implement his/her government plan. Otherwise, deadlock will ensue, tensions will remain high, with the usual political shenanigans taking place at every major issue, for example, during the debt ceiling discussion.

How is the US president elected?

Voters at each state elect electors. On December 17, the Electoral College will convene and vote for the new President. There are 538 electors with both Harris and Trump aiming to secure the support of at least 270 electors. It is worth nothing that these electors are expected to vote in favour of the candidate that earned the highest number of votes on November 5 at the state they represent.

When does voting stop?

In the majority of US states, polls will close at around 9pm ET (2am GMT). Alaska is the last to close its polls at 1am ET (6am GMT) while California has a deadline of 11pm ET (4am GMT).

Which are the safe states, where an upset could signal a surprise election result?

There are some traditional states that tend to consistently vote for Democrats or Republicans since the 1970s. For example, Alabama, Alaska, Arkansas, Idaho, Kansas, Kentucky, Mississippi, Missouri, Montana, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, West Virginia and Wyoming are called red states for usually voting in favour of the Republican candidate.

On the flip side, California, Connecticut, DC, Delaware, Hawaii, Illinois, Massachusetts, Maryland, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington tend to support the Democratic candidate.

Which are the key battleground states?

Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin will determine the election outcome. They have a total of 93 electors. In 2020, President Biden won Arizona, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin, losing only North Carolina to Trump.

In 2016, Trump won Arizona, Georgia, Michigan, Pennsylvania, North Carolina and Wisconsin, but lost Nevada to Clinton.

Why TV channels “call” the states?

The Associated Press and the big US channels tend to “call” the US states for one of the two main candidates fairly quickly. This is based on actual votes, exit polls and their own analysis of the remaining votes to be counted. This is not the official result, but it is considered a very secure estimate.

Does it take a long time to count the votes? 

Most states allow absentee voting and voting by mail, and they have the right to count these votes during the time that polls are still open, sometimes ever before November 5. This means that once polls are closed, they can quickly announce the results of these votes. Word of caution though as these early figures might not be representative of the final result.

Colorado, Florida and South Carolina are among the states that tend to quickly count their votes. Others like Pennsylvania, Nevada and Minnesota are usually slow in counting the cast ballots.

Who declares the results?

There is no single federal agency that tallies the results and declares the winners. This means that states will declare, officially announce the winner, wherever counting has completed. For most states this declaration will take place in the 12-24 hour window after polls close, but it can take much longer in certain cases.

When will we know the final result?

If one of the two main candidates does not have a clear lead in the swing states, it could take a few days for the final result to be declared. For example, in 2020, Biden was officially declared the winner when the Pennsylvania result was confirmed, four days after the election day.

Additionally, most of these key states automatically recount all the votes if the margin is less than 0.5% or 1%, potentially postponing the final result even further.

Market Picture

Crude oil gained around 2.5% on Monday after OPEC+ reported that it intends to delay the cartel’s production quota increase by one month from December. The November 2023 agreement calls for eight major producers, including Saudi Arabia and Russia, to voluntarily cut output by 2.2 million bpd.

This is another attempt by the cartel to reverse the downward price trend that has been in place since April. The decline is being driven by macroeconomic factors such as a slowdown in China and sluggish European demand. On the supply side, production increases outside the cartel stand out, including the US, which has produced a record 13.5 million bpd over the past three weeks.

Natural gas inventories, the closest substitute for oil, are at a near four-year high. The moving average, which smooths out intra-year fluctuations, has reached the 2016 and 2020 highs, indicating a glut of hydrocarbons in the world’s largest economy.

The struggle between deteriorating macroeconomic sentiment and the cartel’s desire to reduce supply has been an important feature for much of this year and remains so at present. In addition to this, there is a strong growth in alternative energy sources, which is somewhat unusual at a time of relatively low oil and gas prices.

Technical Analysis

The rally at the start of the new week closed the negative gap we saw a fortnight ago following the Israeli strike on Iran. Some traders see the gap closing as a reason to sell again, especially as oil remains below the 50- and 200-week moving averages on a weekly basis, an important signal of a long-term bearish trend.

While economics usually trumps OPEC geopolitics in the medium term, the cartel’s continued efforts point to a ‘support’ price that the cartel is trying to hold. If it succeeds, key levels for the bulls will be $75 for WTI (the area of the October highs and the 50-week average) and $80 (a key round level also targeted by the 200-week average).