Markets endured a turbulent week that ultimately resolved with a more constructive tone. The week began under pressure from uncertainty around Fed policy, delayed U.S. economic data, and geopolitical tensions, before rebounding strongly as rate cut expectations firmed and risk appetite returned.

The Fed Fog Lifts Somewhat

The dominant theme this week has been the shifting probability of a December Fed rate cut. At the week's start, markets had largely abandoned expectations for December easing following hawkish Fed commentary. However, remarks from New York Fed President John Williams on Friday, followed by Governor Christopher Waller overnight, reinvigorated expectations. Waller was notably dovish, emphasising labour market concerns over inflation risks and explicitly advocating for a December cut. Market pricing subsequently shifted from around 45% probability of a cut to approximately 75% by week's end.

The Bureau of Labor Statistics finally released September's non-farm payrolls data, six weeks delayed following the government shutdown. The unemployment rate ticked up to 4.4%, its highest in four years, though headline job creation of 119,000 beat modest expectations. More concerning was the confirmation that the October employment report has been cancelled entirely, with November data delayed until after the December FOMC meeting. The Fed will essentially be flying blind at its next gathering.

Australia Charts Its Own Course

While markets increasingly price further Fed easing, Australia continues to strike a markedly different path. The inaugural full monthly CPI showed headline inflation running at 3.8% year-on-year in October, up from 3.6% in September and above consensus expectations of around 3.6%. Trimmed mean inflation also edged higher to 3.3% over the year, signalling that the surprise is not just about a few volatile components but a slightly broader underlying pulse.

Housing remains the single biggest driver, with prices in that category up about 5.9% over the year, while food and recreation also contributed meaningfully to the uplift. On a monthly basis the CPI was flat, but the RBA will care more about the drift higher in the annual and core measures, which are now running above where the Bank's August and November projections suggested they "should" be at this point in the disinflation process. The Q3 wage price index held steady at 3.4% year-on-year—still elevated and consistent with lingering labour market tightness—though private sector wage growth showed signs of moderation at 3.2%.

Several structural and cyclical differences help explain why Australia is on a different track from the U.S. despite broadly similar post-pandemic inflation profiles. In contrast to the U.S., where shelter inflation is starting to cool, measured rents in Australia are still accelerating, reflecting persistent supply constraints and strong population growth, keeping core services inflation stickier. Policy guidance also differs markedly. The RBA has repeatedly emphasised there is "limited scope" for further rate cuts and is prepared to keep the cash rate at 3.60% until there is clearer evidence that inflation is moving sustainably back toward the 2–3% target band. Market pricing and survey data now show that many economists see no further cuts through 2025–26, whereas in the U.S. investors have been increasingly willing to price multiple additional Fed cuts as growth and labour data there soften.

Equity Markets: Tech Leads the Recovery

Equity markets experienced notable divergence across the week. The NASDAQ-100 and broader U.S. indices suffered mid-week weakness following Nvidia's earnings, which despite record revenues of $57 billion, failed to sustain initial after-hours enthusiasm. Nvidia shares actually closed lower post-results, evidence that expectations have become extraordinarily elevated.

The recovery gained momentum from Monday, accelerating into Tuesday's session. Alphabet provided fresh impetus with news of its Gemini 3 AI model and a competing chip that could rival Nvidia's offerings. The S&P 500 gained three-quarters of a percent overnight, while the Dow added 1.25%.

Gold has been the standout performer, surging above $4,000 per ounce and extending gains through the week's end, a reflection of ongoing uncertainty and perhaps hedging against geopolitical risks.

Currency and Commodities Under Pressure

The Australian dollar endured a difficult week, falling 1.3% to settle around 64.6 US cents, with commodity currency weakness compounding US dollar strength. Oil prices continued their slide, with Brent falling below $63 per barrel on concerns about oversupply—Goldman Sachs is forecasting a 2 million barrel per day global surplus by 2026—and speculation around potential Ukraine peace negotiations.

Looking Ahead

In this week's What We Are Working on Video with Andrew Hunt refines his 2-stage thesis of the rest of the year and into next year. The first stage is a simultaneous credit tightening in the U.S. and weakening of the Chinese economy (with implicit reduction in capital flows into the U.S. The second date is contingent on the probable reaction function of the authorities in the U.S. (the Administration/Treasury followed eventually by the Fed) which will be highly stimulatory and ultimately inflationary sometime next year. We are of course wary of making any short-term forecasts, never mind those with 2 distinct legs, but this one resonates, especially given how keen President Trump seems already to unleash another round of ‘stimicheques’ (’Tariff Dividends’). While we also discuss 3 other plausible scenarios, this one gets the highest probability at this stage.