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Bitcoin has become the first thing I look at when I turn my computer on since Monday, since it tells about the risk appetite for the riskiest and most speculative pockets of the market. Unsurprisingly, its correlation to the USDJPY has been notably close in the two sessions that followed Bank of Japan (BoJ) Governor Ueda’s hint that the BoJ was cooking a rate hike for the December dinner.

This morning, Bitcoin looks better, the Nikkei returned above the 50K psychological level and the US and European futures are pointing at a positive start, yet the pressure from the JGBs remains firm. The Japanese 10-year yield is up to a fresh multi-decade high, at 1.88% this morning. And that’s no good news: these levels mark the end of the Japanese free liquidity that has been propping the markets over the past decade, as Japanese investors put trillions of dollars of funds into US Treasuries among other assets to get better returns. Above the 1.71% level for the 10-year JGB, the math doesn’t work: the Japanese don’t get a better return outside when you take the currency hedging costs into account. The risk is another episode of reversal of carry positions in the yen – where investors will sell their foreign assets and return to yen – strengthening the yen and triggering a fresh selloff across global financial markets, including US Treasuries. And US Treasuries are the basis of valuation. This is what we use as the risk-free rate in pricing models.

So the chain goes like this: the BoJ hikes rates, the Japanese yields climb further, the Japanese sell their foreign assets and repatriate their funds, the yen appreciates and the global financial assets depreciate. This is what happened on Monday. On Tuesday, a strong 10-year JGB auction gave relief, allowing the Bitcoin rebound. Today, we’re back to square one. The Japanese yields are pushing higher again. If we follow the reasoning, we should see cautious risk taking and perhaps a bearish session-

I come to believe that the biggest driver of the year-end sentiment may not be the Federal Reserve (Fed), but rather the BoJ – or the cocktail of Fed/BoJ. The Fed is widely expected to announce a 25bp cut when it meets next week. The ADP report due today is expected to print 5’000 new private-sector job additions in the US during last month – a number small enough to back a December Fed cut. But Friday’s PCE data will hint at what will happen next. And given that it’s still well above the Fed’s inflation target, we could hear a hawkish cut from the Fed next week that could reshuffle expectations for next year – toward a more cautious path of easing. Right now, the expectation is 2–4 rate cuts next year. The risks are skewed toward fewer, not more.

Then, the BoJ will announce its decision a week after the Fed, and markets assign roughly an 80% probability to a hike. Mr. Ueda has made it clear he sees more room to go in terms of policy normalization. I mean, look, the BoJ’s policy rate sits at 0.50% while Japanese inflation sits around 3%. You bet, there is room to normalize. It’s the end of Japanese deflation, and it’s the end of the Japanese free cash – for good.

The S&P 500 was slightly up yesterday. Nvidia made a positive attempt, though most of the session gains were quickly given back, perhaps on fresh news that Amazon also started selling its own AI chip – the Trainium 3 – to compete with Nvidia and Google in the hardware segment. Interestingly, the market reaction to Amazon’s Trainium has been much more muted compared to the reaction to Google’s TPUs. But wait until a big name inks a deal with Amazon for their chips. Amazon – like Google – has the data centers and the chips. They don’t have a Gemini-like chat buddy, but AWS supports training and deployment of AI models on its custom AI chips. So keep an eye on Amazon.

I stumbled on an interesting Bloomberg piece — and separately a Visual Capitalist chart — that are worth commenting. The Bloomberg report highlights how the winning tech business models of companies like Meta and Amazon were historically capital-light, which helped deliver the kind of juicy profit margins investors love. The Visual Capitalist chart then compares profit margins to revenue — and you'd expect higher margins to neatly align with higher revenues, but the relationship is not diagonal. Some companies scale revenue with big margins; others don’t. And unsurprisingly, your capital-light tech buddies sit among the most profitable companies in the world precisely because they’ve been capital-light.

But that’s changing with AI. These companies are now pouring billions into data centres and chips just to stay in the game. And that capex has already been eating into free cash flow — and may soon start nibbling at their margins. Margins won’t collapse overnight, but the direction is clear: AI is rewriting the cost structure of Big Tech, and investors will eventually have to price that in.

And the size of the repricing will ultimately depend on yields — because yields are the backbone of every major valuation model. Lower yields mechanically lift valuations; higher yields compress them. And right now, yields are under upward pressure.

So, all eyes turn to the Fed, and to the inflation data that will dictate how fast — and how deep — the Fed can realistically cut.

In focus today

In the euro area, focus turns to the final services and composite PMI data for November. The final manufacturing PMI on Monday came in at 49.6 like the flash release of 49.7, so we expect the final composite PMI to be almost as the flash release.

In Switzerland, November inflation is released this morning at 8:30 CET. Deflationary concerns have recently resurfaced in Switzerland, but the bar remains high for a cut into negative territory by the SNB. We expect no further cuts and would expect the first course of action to be FX intervention.

In the afternoon, both ISM Services index and the ADP private sector employment report for November are due for release from the US. For the former, the flash PMI released earlier signalled steady activity growth. For the latter, the weekly employment estimates have signalled weakening growth momentum around late October and early November, and hence consensus expects muted growth at only +10k.

This morning, we have published our Nordic Outlook - Cruising at modest speed, 3 December, with new economic forecasts globally and for the Nordic countries. In the Nordics, we have upgraded the outlook for growth in Sweden and now expect a rate hike in late 2026 and one more in 2027. Danish GDP is also upgraded, but that is more of a technical change. In Norway, we expect growth and inflation to decline, and a string of rate cuts. Finnish growth has disappointed but there are signs of a modest turnaround. For the major economies, we maintain our view of a stable euro area, the US converging to structural levels of growth and inflation amid high uncertainty, and China continuing with strong export growth but struggling to raise domestic demand growth.

Economic and market news

What happened overnight

In China, RatingDog services PMI fell to 52.1 in November (prev: 52.6), marking the slowest pace of expansion since June. Growth in new orders softened despite a rebound in export business amid easing US-China trade tensions. Employment continued to decline for the fourth consecutive month, while rising input costs pressured profit margins. Business sentiment weakened further, reflecting the broader challenges facing the services sector.

What happened yesterday

In the euro area, November inflation came in slightly higher than expected at 2.2% y/y (cons: 2.1% y/y) from 2.1% y/y in October. It was a "low" 2.2% at 2.15%, so a very minor upside surprise. Core inflation remained unchanged at 2.4% y/y as expected due to services inflation rising to 3.5% y/y from 3.4% y/y and goods inflation falling slightly. The momentum in services inflation was similar to recent months, so the uptick is mainly due to base effects and thereby not particularly hawkish.

The EU has agreed on a deal to phase out all imports of Russian gas by 2027, aiming to fully end reliance on its former main energy supplier.

In Denmark, Nationalbanken's press release on the November FX reserve revealed that they did not intervene in the foreign exchange market in November, in line with our expectations. November marks the 34th consecutive month without interventions.

In geopolitics, President Vladimir Putin held a five-hour meeting at the Kremlin with US President Donald Trump's envoys, Steve Witkoff and Jared Kushner, to discuss a possible peace deal to end the war in Ukraine. While the Kremlin described the talks as constructive, no compromises were reached, particularly on territorial issues, and details remain undisclosed. Concerns persist among European powers and Ukraine over the potential for US concessions to Russia.

Equities: Global equities traded broadly higher yesterday. The cyclical bid remained dominant, most notably in the US, where defensive sectors were lower and small-cap underperformed with large-cap growth regained some momentum. But the real story was the continued strength in cyclicals. European banks delivered yet another strong session following the euro-area inflation data, which in effect validated the ECB's comfortable policy stance. Banks continue to benefit from this backdrop, and the sector's 12-month performance stands at +77%, far ahead of the next-best of the 25 STOXX 600 industry, Capital Goods (+34%). Even that 34% looks modest compared with the bank rally, which has been exceptional both on relative and absolute terms. In the US yesterday Dow +0.4%, S&P 500 +0.3%, Nasdaq +0.6%, Russell 2000 -0.2%. Overnight, Asia traded higher as Japan retraced part of Monday's declines. US and European equity futures are marginally in the green this morning.

FI and FX: After an eventful start to the week, yesterday proved quieter for fixed income markets. Rates edged marginally lower in a reversal of Monday's move with US swap rates ending the day 2bp lower across the curve and similarly, European swap rates 1bp lower across the curve. However, movements in the very front end have gained traction with short-term repo rates in the euro area rising over month-end with GC repo rates rising roughly 4bp. Today, focus turns to auctions in Norway and Denmark. JPY eased off recent highs with USD/JPY breaking back below 156. EUR/USD regained some tailwind back to the 1.1650 mark.

Daily Pivots: (S1) 1.1602; (P) 1.1615; (R1) 1.1638; More….

EIUR/USD rises slightly today but stays below 1.1655 resistance. Intraday bias remains neutral. On the upside, decisive break of 1.1655 will complete a head and should bottom pattern (ls: 1.1540, h: 1.1467, rs: 1.1490). That would argue that whole fall from 1.1917 has completed as a correction. Further rise should then be seen to 1.1727 resistance first. On the downside, though, below 1.1554 will turn bias to the downside for 1.1490 support first.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1345) holds, the up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Risk sentiment was mixed in Asian trading today. The Nikkei outperformed thanks to a rebound in SoftBank and renewed enthusiasm for tech and AI names, but the index failed to break back above 50,000 psychological level—highlighting lingering hesitation among investors despite the intraday gains. Outside Japan, the tone was considerably weaker, particularly in Hong Kong, where declines in property and China-linked names weighed on the broader market. Regional divergence highlights an indecisive backdrop. Clarity may emerge later in the day as US markets react to the ADP employment report and ISM services data.

In the currency markets, Dollar is back under selling pressure through the session, extending a soft patch that some expect to persist into year-end. The gradual release of delayed US economic data is expected to show a softer underlying growth profile—especially in the job market—which could reinforce expectations for additional Fed easing next year. Additionally, a stable global risk environment only deepens headwinds for the greenback.

Fed rate-cut expectations continue to build as investors look for data confirming the slowdown in consumption and hiring. Combined with an improving risk backdrop globally, the Dollar is increasingly vulnerable to further downside, particularly if today’s ISM services numbers reinforce the softer tone seen in this week's manufacturing data.

In the meantime, Aussie leads the days' performance board, buoyed by hawkish comments from RBA Governor Michele Bullock that overshadowed the softer-than-expected Q3 GDP figures. Kiwi follows as the second-strongest, while Sterling also trades firmer on cross-flow demand. At the weaker end of the board, Dollar is the day’s worst performer so far, followed by Loonie and Swiss Franc. Euro and Yen sit mid-table.

In Asia, Nikkei closed up 1.14%. Hong Kong HSI is down -1.30%. China Shanghai SSE is down -0.54%. Singapore Strait Times is up 0.23%. Japan 10-year JGB yield rose 0.029 to 1.892, edging closer to 1.9 handle. Overnight, DOW rose 0.39%. S&P 500 rose 0.25%. NASDAQ rose 0.59%. 10-year yield fell -0.010 to 4.860.

RBA’s Bullock warns inflation persistence may require renewed tightening

RBA Governor Michele Bullock told the Senate Economics Legislation Committee that the bank remains on high alert for renewed inflation pressure and is prepared to act if price gains prove "more persistent" than expected. She noted that upcoming data in the next few months will be crucial in determining whether demand pressures are easing, adding that officials may still have to pivot back toward tightening if inflation shows signs of regaining strength.

Facing questions on past budget and inflation mis-projections, Bullock conceded the RBA “hasn’t done it yet” in bringing inflation sustainably back to target, and must continue working toward that objective. She stressed that the board must “keep working on this”.

With national debt set to exceed AUD 1 trillion and a deficit of AUD 42 billion projected, she noted that lower public and private savings—if paired with unchanged investment—could "put upward pressure on the neutral rate,” she said."

But she added that that such an outcome is possible but contingent on both domestic and global forces. She emphasized that while the RBA can respond to domestic dynamics, but we don’t control global factors."

Australia Q3 GDP misses forecast at 0.4%, per capita output stagnates

Australia’s economy expanded 0.4% qoq in Q3, below expectations for 0.7% and marking a softer outcome despite a 2.1% yoy rise from a year earlier. The headline result reflected steady domestic activity supported by private investment and household consumption. However, GDP per capita was flat, suggesting growth is tracking population gains rather than delivering broad-based improvement in living standards.

A key drag came from external accounts. Inventory rundown—used to support export volumes—subtracted meaningfully from growth, while net trade also weighed as imports rose faster than exports. The pattern highlights ongoing pressure on Australia’s trade balance even as domestic demand remains resilient.

Grace Kim, ABS head of National Accounts, described Q3 performance as “steady,” noting growth matched the post-pandemic quarterly average. Kim added that per capita GDP stagnation reflected population dynamics rather than outright weakness in activity, with the measure still 0.4% above its level a year earlier.

AUD/USD and AUD/JPY both eye breakouts after hawkish RBA remarks

Australian Dollar rallied sharply today after RBA Governor Michele Bullock signaled to Parliament that policymakers remain ready to tighten policy if inflation shows renewed persistence. Markets took her remarks as a clear indication that a rate hike in 2026 is possible—and that easing is firmly off the table for now. .

Soft Q3 GDP numbers briefly tempered expectations, but failed to stall Aussie’s advance. While quarterly growth undershot forecasts at 0.4% qoq, the 2.1% yoy expansion was still the strongest pace in two years, keeping concerns alive that domestic demand may be too resilient for inflation to retreat as quickly as hoped.

Markets now largely agree that rate cuts are off the table for an extended period, and a pre-emptive hike cannot be ruled out if upcoming data surprise on the upside.

Technically, AUD/USD’s break above 0.6579 reinforces that the correction from 0.6706 likely ended at 0.6420. The uptrend from the 2025 trough at 0.5913 may now be resuming, setting up a retest of 0.6706 peak. The key question is whether bullish momentum can build into that level or whether upside energy fades on approach.

AUD/JPY is also attempting a significant breakout as it challenges a dense cluster of resistance around 102. This zone includes the medium-term rising channel ceiling and the key 102.39 structural pivot. A clean break would represent an important bullish confirmation for longer-term AUD strength.

As long as 100.33 support holds, outlook for AUD/JPY stays bullish. Decisive break above 100% Projection of 94.38 to 100.93 from 96.24 at 102.79 should trigger upside acceleration towards 161.8% projection at 106.83.

Japan PMI services holds strong at 53.2, optimism hits year high

Japan’s Services PMI was finalized at 53.2 in November, edging up from 53.1 in October. Composite PMI also improved, rising to 52.0 from 51.5. S&P Global’s Annabel Fiddes noted “a number of positive developments,” with the sector consistently driving overall activity since mid-year.

Forward-looking indicators strengthened notably. Business optimism and hiring intentions both climbed to their highest levels since early 2025. New orders also accelerated modestly, the first pickup in three months, signaling a gradual improvement in underlying demand even if the pace remains mild. However, the positive momentum was accompanied by firmer inflation pressures. Input costs rose at the fastest rate since May, prompting another solid increase in selling prices as firms sought to protect margins.

With Japan’s new stimulus package now approved—aimed at supporting growth and offsetting rising costs—markets will be watching closely to see whether demand and output continue to improve in the coming months.

China's RatingDog PMI services falls to 52.1, expansion loses pace, employment and margins under pressure

China’s RatingDog Services PMI eased in November, slipping from 52.6 to 52.1, while Composite PMI fell from 51.8 to 51.2. Both measures remained in expansionary territory, but the decline signaled moderation in growth momentum heading into year-end.

Yao Yu, Founder of RatingDog, said the services sector remained “relatively stable,” though November’s reading marked the weakest level since Q2. External demand showed mild improvement and offered “marginal support,” but domestic conditions were less encouraging.

Employment contracted again, profit margins came under pressure, and business expectations weakened—factors Yao described as the “main constraints” on the sector.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1602; (P) 1.1615; (R1) 1.1638; More….

EIUR/USD rises slightly today but stays below 1.1655 resistance. Intraday bias remains neutral. On the upside, decisive break of 1.1655 will complete a head and should bottom pattern (ls: 1.1540, h: 1.1467, rs: 1.1490). That would argue that whole fall from 1.1917 has completed as a correction. Further rise should then be seen to 1.1727 resistance first. On the downside, though, below 1.1554 will turn bias to the downside for 1.1490 support first.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1345) holds, the up trend from 0.9534 (2022 low) is still in favor to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep long term outlook bearish.

Australian Dollar rallied sharply today after RBA Governor Michele Bullock signaled to Parliament that policymakers remain ready to tighten policy if inflation shows renewed persistence. Markets took her remarks as a clear indication that a rate hike in 2026 is possible—and that easing is firmly off the table for now. .

Soft Q3 GDP numbers briefly tempered expectations, but failed to stall Aussie’s advance. While quarterly growth undershot forecasts at 0.4% qoq, the 2.1% yoy expansion was still the strongest pace in two years, keeping concerns alive that domestic demand may be too resilient for inflation to retreat as quickly as hoped.

Markets now largely agree that rate cuts are off the table for an extended period, and a pre-emptive hike cannot be ruled out if upcoming data surprise on the upside.

Technically, AUD/USD’s break above 0.6579 reinforces that the correction from 0.6706 likely ended at 0.6420. The uptrend from the 2025 trough at 0.5913 may now be resuming, setting up a retest of 0.6706 peak. The key question is whether bullish momentum can build into that level or whether upside energy fades on approach.

AUD/JPY is also attempting a significant breakout as it challenges a dense cluster of resistance around 102. This zone includes the medium-term rising channel ceiling and the key 102.39 structural pivot. A clean break would represent an important bullish confirmation for longer-term AUD strength.

As long as 100.33 support holds, outlook for AUD/JPY stays bullish. Decisive break above 100% Projection of 94.38 to 100.93 from 96.24 at 102.79 should trigger upside acceleration towards 161.8% projection at 106.83.

China’s RatingDog Services PMI eased in November, slipping from 52.6 to 52.1, while Composite PMI fell from 51.8 to 51.2. Both measures remained in expansionary territory, but the decline signaled moderation in growth momentum heading into year-end.

Yao Yu, Founder of RatingDog, said the services sector remained “relatively stable,” though November’s reading marked the weakest level since Q2. External demand showed mild improvement and offered “marginal support,” but domestic conditions were less encouraging.

Employment contracted again, profit margins came under pressure, and business expectations weakened—factors Yao described as the “main constraints” on the sector.

Full China RatingDog PMI services release here.

Japan’s Services PMI was finalized at 53.2 in November, edging up from 53.1 in October. Composite PMI also improved, rising to 52.0 from 51.5. S&P Global’s Annabel Fiddes noted “a number of positive developments,” with the sector consistently driving overall activity since mid-year.

Forward-looking indicators strengthened notably. Business optimism and hiring intentions both climbed to their highest levels since early 2025. New orders also accelerated modestly, the first pickup in three months, signaling a gradual improvement in underlying demand even if the pace remains mild. However, the positive momentum was accompanied by firmer inflation pressures. Input costs rose at the fastest rate since May, prompting another solid increase in selling prices as firms sought to protect margins.

With Japan’s new stimulus package now approved—aimed at supporting growth and offsetting rising costs—markets will be watching closely to see whether demand and output continue to improve in the coming months.

Full Japan PMI services final release here.

RBA Governor Michele Bullock told the Senate Economics Legislation Committee that the bank remains on high alert for renewed inflation pressure and is prepared to act if price gains prove "more persistent" than expected. She noted that upcoming data in the next few months will be crucial in determining whether demand pressures are easing, adding that officials may still have to pivot back toward tightening if inflation shows signs of regaining strength.

Facing questions on past budget and inflation mis-projections, Bullock conceded the RBA “hasn’t done it yet” in bringing inflation sustainably back to target, and must continue working toward that objective. She stressed that the board must “keep working on this”.

With national debt set to exceed AUD 1 trillion and a deficit of AUD 42 billion projected, she noted that lower public and private savings—if paired with unchanged investment—could "put upward pressure on the neutral rate,” she said."

But she added that that such an outcome is possible but contingent on both domestic and global forces. She emphasized that while the RBA can respond to domestic dynamics, but we don’t control global factors."

Australia’s economy expanded 0.4% qoq in Q3, below expectations for 0.7% and marking a softer outcome despite a 2.1% yoy rise from a year earlier. The headline result reflected steady domestic activity supported by private investment and household consumption. However, GDP per capita was flat, suggesting growth is tracking population gains rather than delivering broad-based improvement in living standards.

A key drag came from external accounts. Inventory rundown—used to support export volumes—subtracted meaningfully from growth, while net trade also weighed as imports rose faster than exports. The pattern highlights ongoing pressure on Australia’s trade balance even as domestic demand remains resilient.

Grace Kim, ABS head of National Accounts, described Q3 performance as “steady,” noting growth matched the post-pandemic quarterly average. Kim added that per capita GDP stagnation reflected population dynamics rather than outright weakness in activity, with the measure still 0.4% above its level a year earlier.

Full Australia GDP release here.

Meeting Demand Through Stockpiles Today, Productivity Tomorrow

• The September quarter National Accounts show growth slowed to 0.4%qtr – this was softer than both the 0.8%qtr expected by Westpac Economics and the 0.7%qtr expected by the market. Despite this, upward revisions to previous activity saw the year-ended outcome accelerate to 2.1%yr – this year-ended growth rate was in line with Westpac Economics forecasts of 2.3%yr.
• Domestic demand was strong, accelerating as Australia’s economic upswing broadened to include business investment and the construction sector, while new public demand resumed its climb after going sideways over the past two quarters. However, the pickup in housing construction and business investment was a little softer than we expected.
• Inventory stockpiles were run down to meet this demand. Going forward increasing demand is likely to be met by more capacity with productivity growth accelerating to 0.8%yr. Looking at the market (ex-mining) sector, the productivity turnaround appears to be more impressive, accelerating to 1.4%yr.

The detail 

The September quarter National Accounts show growth slowed to 0.4% over the quarter while upward revisions to previous activity saw the year-ended outcome accelerate to 2.1%yr – a touch above the RBA’s updated trend estimate of +2.0%yr but slightly below Westpac Economics’ estimate of trend.

Domestic demand (spending by consumers, businesses, and governments) grew a solid 1.2%qtr over the September quarter and 2.6% in year-ended terms – the strongest quarterly growth since the June quarter 2012 (outside the pandemic). There was no need for a ‘handover’ with both the private and public sectors contributing to the pickup in domestic demand.

New private demand grew a strong 1.2%qtr and 3.1% in year-ended terms – also the fastest quarterly pace since the March quarter 2012 (outside the pandemic). While the consumer contributed, the standout was new business investment which grew 3.4%qtr and 3.8%yr. Despite this lift, the outcome was a touch softer than our 5.8%qtr forecast as engineering construction disappointed on the downside (-0.7%qtr v forecast of 2.0%qtr). Victoria recorded an outsized sharp 8.0% fall in engineering construction activity. Timing difference with the construction work done partial is one possible explanation of this discrepancy.

The positive news was that we saw investment increases across most of the asset classes, including machinery (7.5%qtr and 6.2%yr); and new building (2.0%qtr and 2.1%yr). And while data centre fit outs and the purchase of civil aircrafts were the main contributors to the boost in machinery, capex data showed that the lift was broader to also include consumer facing industries (such as accommodation and food services) and some business facing industries (such as administrative and support services).

Housing construction activity grew 1.8%qtr and 6.5%yr. Here too the quarterly outcome was softer than we expected based on the partial data (+1.8%qtr v +3.2%qtr). However, the year ended outcome was in line with our forecasts as activity in previous quarters was revised higher. The quarterly outcome was driven by both the construction of new dwellings (2.6%qtr) and renovation activity (0.5%qtr). There remains a healthy pipeline of projects to work through, which should support housing construction activity going forward.

Firmer consumer spending extended into Q3, with household spending growing 0.5%qtr and 2.5%yr. This follows the bumper June quarter outcome of 0.9%qtr, which was partly driven by one-offs including the roll-off of state electricity rebates, larger than usual EOFY discounting, and holiday spend around Easter and ANZAC Day.

With population growth projections running at 1.7%yr, this implies consumption per capita has started to post sizable increases. The Aussie consumer continues to be supported by rising real incomes which grew 0.9%qtr and 3.8%yr. A key uncertainty is whether this income boost will fade if interest rates were to remain on hold for longer and as the Stage 3 tax cuts are chewed away by bracket creep (we saw personal income tax increase as a share of household income this quarter). Without this boost, consumption could slow which would have implications for the labour market.

On the flip side, the upswing is likely to gain greater momentum the longer it runs, which increases the likelihood it will become self-sustaining, boosting incomes and supporting consumption going forward. The Westpac–DataX Card Tracker Index shows spending picked up in October, suggesting momentum is extending to the December quarter.

Net exports and inventories were broadly in line with expectations. A rundown in mining, public sector, and consumer goods inventories has detracted around 0.5ppts from Q3 growth, while net exports added a further 0.1ppt drag.

Note, the statistical discrepancy detracted 0.1ppt from growth over the quarter, compared to a 0.2ppt contribution last quarter.

It’s not only demand, supply is also responding

Labour productivity bounced to grow 0.8%yr. Digging a little deeper, we estimate that productivity in the market (ex-mining) sector grew at around 1.4%yr in Q3 (estimates will be finalised after Friday’s Labour Accounts).

As well as moderating growth in the sector’s unit labour costs to around 3.3% in six-month annualised terms, this supports the view that whole-economy productivity growth will recover as the sector-specific factors in mining and the care economy wash out.

Click here for: Westpac Chart Pack - Q3 National Accounts