US mortgage activity drops sharply as home loan rates stay high; AI bond funding to get more expensive; Japanese exports strong; RBA sees worse inflation outlook; UST 10yr at 5.11%; gold holds and oil eases; AU$1 = 70.3 USc

Here's our summary of key economic events overnight that affect Australia, with news the AI buildout is going to cost more as bond investors recoil at the risks involved. Those higher rates will spill out everywhere.

But first, there was a chunky -5.3% fall in US mortgage applications last week from the prior week, making it nine of the past ten weeks of consecutive decline. And apart from holiday weeks, that takes this level back to September 2023 levels. This latest decline comes even though the benchmark 30 year mortgage rate fell to 7.41% although the past three weeks are all higher than any rate since October 2023..

US crude oil stocks fell again last week and by more than -3 mln bbls (down -3.4% in a week) on top of the prior week's -8 mln bbl fall. Their strategic reserves fell too, down -3.1% in a week.

There was a well-supported US Treasury 20 year bond auction earlier today where the median yield came in at 5.42% (5.47% high), compared to the 5.36% at the prior equivalent event a month ago.

And despite posting surprisingly strong earnings, Elon Musk's SpaceX is facing much higher financing costs as his appetite for debt is causing concerns in the CDS markets. Bond investors are finding it hard to get coverage against default risks - there now are few who will offer to take the other side of a CDS transaction. And that spells trouble for all debt-heavy AI tech funding.

Across the Pacific, Japanese exports rose strongly in September, up +16% from year-ago levels, although that was a slower pace than in both July (an all-time record) and August. Still, the September export receipts were ¥11 tln and that matched the March 2026 level to be their second best month ever. But fuel imports more than absorbed those gains so they ran a slightly larger deficit than expected at -¥537 bln (-NZ$6 bln) for the month. They haven't posted a September trade surplus since 2020 and this latest deficit is easily manageable for the world's fourth largest economy (behind the US, China and Germany).

The Indonesian central bank reviewed its policy rate overnight and surprised markets by not raising it from +5.75%. The rupiah fell further although only modestly.

And in Argentina, bond investors are getting skittish as the Javier Milei's reforms fail to deliver and their election is now less than a year away. In Brazil, they have a critical election this weekend. Bond markets there seem unconcerned no matter what the result.

At a conference in Sydney yesterday, an RBA deputy governor said they see the outlook for inflation "materially worse" (12:30) than they were expecting. Markets are assuming that means another rate hike here is much more likely on November 3, 2026.

Globally, there has been a rush to fix a critical security vulnerabilities in the PHP coding language that have been identified by an AI review. Apparently 70% of global websites use the code. (That includes us, and we have also pushed through the update now.)

The UST 10yr yield is down -2 bps from yesterday to 5.11%. The 30 year yield is at 5.41%, down -3 bps. The key 2-10 yield curve is now at +32 bps (-2 bps). Their 1-5 curve is now at +44 bps (-1 bp) and the 3 mth-10yr curve is at +112 bps (-2 bps). The French 10 year has now topped 5% and a 24 year high. The China 10 year bond rate is up +1 bp at 1.63%. The Japanese 10 year bond yield is now at 2.89%, down -2 bps from yesterday. The Australian 10 year bond yield starts today at 5.28%, up +5 bps from yesterday. The NZ Government 10 year bond rate is now at 5.06%, down -2 bps.

Wall Street is up +0.7% on the S&P500 while the Nasdaq is up +1.2%. Overnight European markets were all higher between Frankfurt's +1.3% and London's +0.2%. Yesterday Tokyo ended its Wednesday session up +0.9%. Hong Kong was down -0.9% and Shanghai fell -0.8%. Singapore ended up +0.6%. The ASX200 was up +0.2% in its Wednesday session. The NZX50 ended up a full +1.0%.

The price of gold is little-changed at US$4132/oz and up +US$14 from yesterday. Silver is just under US$57.50/oz and down -50 USc.

Oil prices have fallen -US$1.50 from yesterday to just over US$96.50/bbl in the US, while the international Brent price is down -50 USc at US$108.50/bbl. There were three attacks on tankers in the Gulf region overnight.  Hormuz transits have stayed low today with just six  ships exiting over the past 24 hours, 3 tankers escorted (1 dark with transponders off) and 4 entering for new loads, no tankers (1 dark). The Red Sea activity features a surge in inbound traffic at the Yemen chokepoint but less outbound.

The Australian dollar is +30 bps firmer from yesterday, at just on 70.3 USc. Against the Japanese yen we are up +40 bps at ¥111.1. Against the euro we are up +30 bps as well at 62.6 euro cents.

The bitcoin price starts today at US$84,404 and up a full +2.0% from yesterday at this time. Volatility over the past 24 hours has been modest however at +/-1.5%.