Thursday 2nd October 2025 |
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Markets Defy Political Drama, Eyes on Payrolls
Global
The US is on the verge of a federal government shutdown as lawmakers have so far failed to reach a bipartisan agreement to extend funding before the midnight deadline. The impasse centres on deep partisan divisions over healthcare and budget priorities, with Democrats seeking to maintain expanded health benefits and Republicans advocating for independent negotiation on healthcare outside of the wider spending bill. Both sides are blaming each other for the deadlock, and last-minute talks appear unlikely to yield a solution before the cutoff.
The September nonfarm payrolls report is expected to show a modest rebound, with consensus predictions clustered around a 50,000–85,000 jobs gain following August’s meagre increase of 22,000. Unemployment is forecast to hold at 4.3% or drift slightly higher, and average hourly earnings are anticipated to grow by 3.7–3.8% year-on-year.
The S&P 500 gained 0.25% to close at 6,678.11, while the Nasdaq Composite and the Dow Jones both finished up higher closing 0.30% and 0.18% respectively.
Brent crude has extended the recent decline down -1.3% on the increased OPEC+ supply concerns, trading at ~US$66 per barrel. US bonds remain relatively unchanged with both US 10-year and US 2-year flat, while the US dollar is modestly weaker.
European markets finished higher, shrugging off earlier losses and logging strong quarterly gains. The Euro Stoxx 50 climbed 0.42% to close at 5,529.96, marking its third highest close on record and ending the third quarter up 4.3%. The index has now gained for three consecutive quarters and is 13.52% higher year-to-date.
London’s FTSE100 rose 0.54% to a new all-time high closing 9,350.43, its best quarterly gain since 2020 and up 6.7% for the period. The blue-chip index has climbed for three months in a row and is now 13.20% higher year-to-date, led by strength in construction, insurance, mining, and retail.
Germany’s inflation outpaced expectations, with the Consumer Price Index rising at a 2.4% annual rate, compared to the consensus forecast of 2.2%. This came after similar upticks in regional inflation figures and points to risks that the preliminary euro area CPI could also surpass the 2.2% consensus. Market reaction from European rates was muted, with yields largely unchanged.
Looking at the Asian markets, The Shanghai Composite Index rose 0.52% to close at 3,882.78. The advance was driven by hopes for further economic stimulus from Beijing and steady private sector growth, despite weak official manufacturing PMI readings showing a sixth straight month of contraction while the Hang Seng Index in Hong Kong climbed 0.87% to 26,855.56. Elsewhere, Japan’s Nikkei 225 declined 0.25% to 44,932.63, with exporter stocks pressured by ongoing yen volatility and global growth concerns.
New Zealand
The Kiwi market had a strong rally yesterday, closing 1.22% higher to 13,292.36, it’s best daily result since early August. The advance marked the index’s fifth consecutive monthly gain, lifting the quarterly return to 5.47% and bringing year-on-year gains to 7.0%.
The rally was spearheaded by consumer services, notably Restaurant Brands (see yesterday’s note), which surged over 65% intraday to a record high after the market digested the formal takeover notice from Finaccess Restauración, S.L., for all remaining shares.
Fonterra reported that its New Zealand milk collections rose 2.0% year-on-year in August, reaching 99.9 million kilograms of milksolids for the month. This increase was primarily driven by favourable weather and pasture conditions across the North Island, where August collections climbed 3.4% compared to the previous year; South Island collections fell slightly by 1.6%, due to variable local weather and soil moisture levels.
Season-to-date (June–August) milk collections for Fonterra are up 3.2% to 137.3 million kgMS, continuing a trend of record-breaking monthly production for New Zealand’s sector. This growth reflects sustained momentum seen through the winter and early spring, supported by strong farmgate milk prices, efficient feed costs, and improved pasture yields — trends most pronounced in our largest dairying regions, Waikato and Taranaki. The Fonterra Shareholder Fund closed higher, up 5.02%.
KiwiRail, in its latest annual report, has set a target operating surplus of $160 million for the current financial year, compared to the $111 million achieved in the year ended June 2025. The half-year operating surplus recorded was $25.8 million, with management forecasting a significant lift in performance through the remainder of the year. Despite these ambitious targets, KiwiRail remains cautious about the economic environment, noting that New Zealand’s domestic growth is sluggish and that import container volumes are lower due to subdued consumer demand and an overall downturn in national freight activity. This has pressured Services segment revenue, which declined 4% as seasonal export volumes lifted more slowly and import flows continued to trend below historical averages.
The latest ANZ Business Outlook Survey shows that New Zealand businesses are increasingly optimistic about the outlook for the year ahead, with expected future activity hitting its highest level in five months. The net percentage of firms anticipating higher own activity over the next year rose from 38.7% in August to 43.4% in September, a clear improvement and the best result since April.
Business confidence – General
Cost and inflation pressures in the survey remain elevated: 75% of businesses see higher costs ahead, and the net share of firms intending to raise prices lifted to 46%. Employment intentions also ticked higher, though remain negative for most sectors except agriculture. Notably, survey responses collected after the release of the Q2 GDP data (showing a shock 0.9% contraction) reflected some dent in sentiment, but overall forward-looking expectations appear resilient.
Australia
Australian equities retreated as the S&P/ASX 200 index fell 0.16% to close at 8,848.80, snapping a three-day winning streak. Over the past month, the ASX 200 declined 1.39%, though it remains 7.0% higher year-on-year. The index is trading about 2% below its record high set in August. Trading volumes and market sentiment reflected caution linked to the looming US government shutdown and mixed signals from global growth data, particularly softer Chinese PMI figures.
The Reserve Bank of Australia held the cash rate steady at 3.60% in a unanimous decision, in line with market forecasts. The accompanying statement adopted a more hawkish tone compared to August, indicating the RBA may keep rates on hold for an extended period. Policymakers highlighted that private demand is rebounding more quickly than previously anticipated, and signalled that September quarter inflation could exceed the estimates provided in August. Following the announcement, Australian rates initially sold off before partially recovering.
The Australian dollar strengthened following the interest rate announcement, resulting in the New Zealand dollar falling to a fresh multi-month low against the Aussie near ~0.8760, after a spell of choppy price movements.
Talks between BHP and China Mineral Resources Group (CMRG), the state-run entity responsible for negotiating China’s seaborne iron ore imports, have stalled, prompting instructions from Beijing for Chinese steelmakers and traders to temporarily suspend all new purchases of BHP iron ore cargoes. The dispute centres on the discount applied to BHP’s medium-grade ore, notably its Jimblebar blend fines, with CMRG seeking more favourable pricing as part of annual contract discussions.
China’s directive, covering both dollar-denominated shipments and spot market cargoes, reflects a strategic push to exert influence over contract pricing and reduce perceived overpayment for certain Australian grades. The ban is viewed by analysts as a negotiating tactic designed to pressure BHP ahead of any final price agreement, and shipments from other major miners like Rio Tinto are continuing as normal.
BHP has not confirmed any operational disruption at Port Hedland and is reportedly diverting volumes to other customers in Japan, South Korea, and India while the standoff persists. The short-term market impact is expected to be muted, given ample inventories at Chinese mills ahead of Golden Week holidays, though the move increases uncertainty in the iron ore market, highlights China’s growing market confidence, and raises the possibility of broader trade or pricing realignments if the dispute drags on.
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