Markets Decide RBA Rate Hike Is A Done Deal After Inflation Data

- Aussie Q3 core inflation stronger than expected: (AU Q3 CPI QOQ: 0.7% V 0.9% expected, YOY: 1.9% V 2.1% expected; RBA TRIMMED MEAN QOQ: 0.9% V 0.8% expected, YOY: 2.9% V 2.8% expected; RBA WEIGHTED MEDIAN QOQ: 1.0% V 0.8% expected, YOY: 3.1% V 2.8% expected) Given the drop in oil prices and child care rebates, the softer Q3 headline inflation was widely expected, and investors instead focused on core inflation beating estimates. Markets have now decided that the RBA will have to tighten policy, with interest rate futures pricing in an 83% chance of a 25bps rate hike at the bank's November meeting vs. 60% priced in before the data was released. A survey conducted immediately after the data release showed that 11 out of 12 economists surveyed expect a November rate hike. The AUD/USD moved from 0.8990 before the data to 0.9028 at 23:18 ET, with investors keeping a close eye on the conviction of the AUD/USD rally above 0.90.

- The NDRC, a top Chinese think tank, is circulating a report that calls for a 15%-20% one-off revaluation of the CNY. The Chinese government usually communicates its intentions to the markets through their think tanks, and a one-off revaluation is likely to have significant impact on proxy currencies like the JPY, KRW and HKD.

- Japan's Sept trade surplus hits record high: (JP SEPT MERCHANDISE TRADE BALANCE: ??1.64T V ??1.48T expected, ADJUSTED:??1.03T V ??900B expected) Analysts pointed out that the data is not as strong as it shows in the headline figure, as it is largely supported by a decline in imports. Sept exports to the United States fell -9.2% y/y, while exports to China increased +16.5% y/y.

- Equities: At 23:08 ET the Nikkei is higher by +0.78% as Japanese shares track Wall Street gains. Australia's ASX is higher by +0.93% as traders resist the temptation to take profits on rebounding financials ahead of Merrill's earnings release (financials have led the charge over recent sessions). South Korea's Kospi is higher by more than +2.0% on gains in shipping companies. Chinese equities are higher by +1.39%, as investors continue to buy banks on earnings speculation.

- Commodities: Crude oil traded lower in Asia ahead of tomorrow's weekly U.S. inventories data, losing -0.54% between 18:00 ET and 23:13 ET, last quoted at $84.81/bbl. A weaker USD helped gold, but lower oil prices capped the commodity's advance. As a result, spot gold is little changed and trading around $763/oz. Shanghai Copper is lower by more than -1.7% ahead of tomorrow's U.S. housing data.

(by Eben Esterhuizen and Gavin Pierce)