Fundamental Summary: 1. Australian home prices rose overall in November, but growth diverged, with Sydney and Melbourne seeing significantly slower increases. Data from real estate consultancy Cotality shows Australian home prices rose 1% month-on-month in November, with the median price reaching AUD 888,941, slightly below October's 1.1% gain. Year-to-date, national prices have climbed 7.5%. The rally was primarily driven by smaller capital cities like Perth and Adelaide, where prices surged 2.4% and 1.9%, respectively. In contrast, Sydney and Melbourne saw muted growth of just 0.5% and 0.3%. Analysts note that persistent inflation above the central bank's target range and expectations of stable interest rates have dampened sentiment, particularly in high-priced Sydney and Melbourne. Auction clearance rates in these cities remained subdued at 60%-70% in late November, below the decade average. Meanwhile, regulators announced a cap on high debt-to-income mortgages starting February next year to curb housing risks. Economists warn that declining affordability, uncertain rate outlooks, and tightening macroprudential policies could further slow price growth in 2026.
2. US manufacturing contracted for the ninth consecutive month, with tariffs and weak demand hindering recovery. The ISM Manufacturing PMI fell to 48.2 in November, marking nine straight months of contraction and missing market expectations. While still above the 42.3 threshold typically associated with economic expansion, the persistent weakness highlights sectoral pressures. Weak demand was the primary drag, with the new orders sub-index contracting for the ninth time in ten months to 47.4. Backlogs also continued to shrink. Supply chain pressures eased, with the supplier deliveries index dropping to 49.3, indicating faster deliveries. However, input cost pressures persisted, as the prices paid sub-index edged up to 58.5, signaling sustained inflationary pressures. Tariffs emerged as a key constraint, reportedly pressuring manufacturing activity while lifting some goods prices. Despite AI investment providing some support, structural challenges like labor shortages limit a full recovery. The employment sub-index contracted for the tenth straight month, reflecting firms adjusting headcounts amid demand uncertainty. Looking ahead, the US Supreme Court's scrutiny of Trump-era tariffs adds trade policy uncertainty. Economists broadly agree that even if adjusted, structural challenges will constrain a full manufacturing rebound.
At 9:00 AM Beijing time on December 2 (Tuesday), Fed Chair Powell's speech will be closely watched for policy cues that may impact market sentiment and currency trends.
UBS Warns of Early RBA Rate Hikes: UBS revised its outlook, warning that Australia's surging home prices could prompt earlier rate hikes. The bank now expects the RBA's "next move to be a hike," potentially starting in Q4 2026, with another in Q1 2027, lifting the cash rate to 4.1%. Economist George Tharenou noted that 1% monthly and nearly 7% annual price gains risk fueling broader inflation via construction costs and wealth effects, potentially accelerating hikes to mid-2026 with larger increments.
GDP Preview: Mixed Business Signals Upcoming Q3 GDP data faces mixed signals. Private non-farm inventories unexpectedly fell 0.9%, potentially shaving 0.3 percentage points off GDP. However, strong wage growth (1.5% quarterly, 6.3% annually) and flat corporate profits (down 1.7% inventory-adjusted) paint a nuanced picture. Major banks maintain cautious GDP forecasts of 0.7% quarterly and 2.2% annual growth, with net exports potentially offsetting inventory drags.
Defense Overhaul: Australia announced its largest defense restructuring in 50 years, creating a Defense Delivery Agency (DDA) by July 2026 to streamline AUD 70 billion in additional spending over a decade. The move aims to address delays and cost overruns in projects like AUKUS submarines.
Market Watch: The ASX 200 fell 0.57% to 8,565.2 on Monday, weighed by global risk-off sentiment from BOJ hawkishness and an ASX system outage that halted trading. Healthcare, tech, and financials led declines, while energy and materials gained.
Geopolitical Updates: - Ukraine: Russian strikes killed 4 in Dnipro amid diplomatic efforts. Kyiv seeks Western-backed peace terms as US-Russia talks advance. - Israel: PM Netanyahu's pardon request sparks political turmoil, with opposition demanding his resignation.
Technical Analysis: AUD/USD hit a three-week high of 0.6565 amid Fed rate cut bets. Daily charts show bullish momentum above the 0.6500 pivot, with 0.6560 resistance and 0.6440 support key. A break above 0.6560 could target 0.6700, while failure may test 0.6400. 4-hour charts indicate sustained uptrends, with 0.6560-0.6600 as upside targets and 0.6520-0.6490 as downside supports.