Treasury rally sinks dollar, lifts gold in Asia-Pacific markets

• Barclays suggests a Tesla-SpaceX merger announcement could come before December

Market highlights:

• US government bonds continued their recovery from levels seen after the CPI release, with 10-year yields trading 21 basis points beneath their post-inflation spike.
• The greenback weakened across the board and gold rose by about US$40, supported by declining yields and a Bloomberg report indicating China could be holding more US Treasuries than officially recorded.
• Crude edged lower following a Reuters report that Washington is contemplating loosening sanctions on shadow fleet vessels to reduce freight costs and increase oil shipments from the Gulf.
• The Australian dollar bucked the trend, declining after September payrolls fell by 39,300 while the jobless rate stayed at 4.7%.
• Fed's Mary Daly indicated further rate increases are probable but suggested no action is needed at the October meeting. BOJ board member Junko Koeda urged the bank not to be excessively cautious on rate rises.
• Japan's Nikkei slid 3.5% and South Korea's Kospi deepened its decline amid a worsening selloff in tech hardware stocks.
• According to Bloomberg, Barclays stated that a merger announcement between Tesla and SpaceX could occur before December.
• Anthropic's third-quarter revenue jumped 45% to US$16.8 billion, as reported by Reuters. TSMC is set to release results, with its earnings call at 0600 GMT.

Bond rally drives currency and commodity moves

US government bonds continued their rebound in Asian trading, pulling 10-year yields 21 basis points under the peak seen after Wednesday's stronger-than-forecast inflation numbers. The move rippled across asset classes. The dollar dropped against most peers, while gold advanced by roughly US$40.

Lower interest rates make gold more attractive as it offers no yield, providing a boost to the precious metal. Treasuries also benefited from a Bloomberg report suggesting China might own more US debt than officially recorded. A significant increase in Canada's disclosed US securities holdings, to close to US$600 billion, has sparked talk that China is using non-US custodians to hold bonds. These reports remain unverified.

News from Bolivia regarding gold had little immediate impact on prices. According to Bloomberg, the nation is replacing a central bank certificate for gold exports with a rule demanding exporters prove to regulator SENARECOM that at least 80% of proceeds are placed in local banks, in an effort to increase dollar inflows and supervision.

Crude oil

Crude prices ticked down after a US official informed Reuters that the government is exploring a relaxation of sanctions on shadow fleet tankers to lower record freight charges and boost Gulf oil supply. Elevated fuel costs pose a political threat to the administration before the November 3 midterm elections.

Aussie dollar weakens after employment miss

The Australian dollar moved against the trend, declining while most other major currencies rose versus the greenback. Australia's September employment figures unexpectedly dropped, and the jobless rate remained at a five-year peak of 4.7%. This led traders to reduce expectations for another rate increase from the Reserve Bank of Australia.

Central bank commentary

San Francisco Fed chief Mary Daly stated that further rate hikes are more probable than not, per a Reuters interview. She noted that timing remains under consideration and indicated no urgency for action at the October 27-28 meeting. Her remarks came after Chicago Fed President Austan Goolsbee spoke on Wednesday and the publication of the Fed's Beige Book.

In Japan, BOJ board member Junko Koeda argued that the central bank should not be too cautious in raising rates, pointing to upside price risks and easy financial conditions. She estimated the neutral rate well above 1%, with the policy rate near 1.25%. In New Zealand, RBNZ chief economist Paul Conway described the late-October decision as wide open, although he said a cash rate increase remains more probable.

Stock markets

The decline in tech hardware shares intensified across Asia, with chipmakers following Wall Street lower on worries about additional Fed rate hikes and how AI investments will be funded. Japan's Nikkei dropped over 4%, dragged down by SoftBank, Advantest, and Tokyo Electron. South Korea's Kospi slid further, while the Kosdaq also fell, causing a 20-minute trading halt.

Cryptocurrencies

Bitcoin briefly slipped below US$81,000, with approximately US$485 million in liquidations reported.

Corporate developments

According to Bloomberg, Barclays indicated that a merger announcement between Tesla and SpaceX could happen before December. Additional details from the note were not immediately released. Reuters reported, citing an investor present at a pre-IPO meeting, that Anthropic's third-quarter revenue climbed 45% quarter-over-quarter to US$16.8 billion. First-quarter revenue stood at US$4.7 billion, and second-quarter revenue at US$11.6 billion.

Upcoming events

TSMC is forecast to post a 65% increase in third-quarter net profit to NT$746.3 billion, roughly US$23.4 billion, based on an LSEG SmartEstimate. A figure above NT$706.56 billion would set a record and mark the firm's 11th consecutive quarter of profit growth. The earnings conference call is scheduled for 0600 GMT, corresponding to 5:00pm in Sydney and Melbourne.