Morning Macro 9th December
Australia’s hawkish pivot is ripping through global rates. Bullock’s “no cuts for the foreseeable future” stance has catapulted AU 10-year yields to the top of the developed-market league table, widening the AU–US spread to the highest since early 2022. With Q4 CPI now the swing factor for a potential RBA hike in May, divergence versus a Fed still cutting has become the dominant theme. The 10-year differential (Figure 1) shows Australia breaking away, dragging AUD higher.
Meanwhile, the Fed is set for a third cut tomorrow, but support for more easing is thinning out, now only 72bps of cuts priced in the next 12 months, compared to over 90 bps at the end of November (Figure 2). USTs cheapened a little ahead of FOMC with 10yr pinned in its 4.00–4.20% range. NY Fed survey shows inflation expectations steady but household sentiment souring.
Germany is accelerating its military build-out, with Merz vowing to turn the Bundeswehr into Europe’s strongest army and committing to hit NATO’s new 3.5%-of-GDP defence target by 2029 – six years early. Berlin is leaning heavily on Rheinmetall, KNDS and the US–Israeli Arrow 3 system as it rewires Europe’s security architecture.
RBI launches unprecedented FX operation, with traders reportedly selling $100 million USD per minute, in an attempt to curb record depreciation without draining liquidity. Governor Malhotra is embracing a more flexible, two-way regime to deter speculation, but a widening trade deficit, 50% US tariffs and foreign outflows keep pressure intense as the rupee now holds just below the psychologically critical 90 level.
Trump permits sales of Nvidia H200 chips to China, though Nvidia share price reaction was muted, up 1.7% yesterday. Nvidia shares are still 12.5% down from record high at end of October, while S&P 500 index is just 1.1% off its late-October high. Globally, indices remain near record highs: Kopsi just 2% down, Nikkei 3.3% down.
Data today: JOLTS, ADP weekly, NFIB business optimism, BoE Bailey speech.
