AUSTRALIA: VIEW: Westpac Sees High Bar For December Rate Cut
Oct-30 03:58
Today’s CPI data have not changed Westpac’s view that the RBA will leave rates on hold in November and begin easing in February. Q3 trimmed mean moderated to 3.5% y/y from 4.0% with disinflation “on track”, while the electricity rebate-impacted headline fell to 2.8% y/y from 3.8%.
- Westpac believes that the Q3 data would have been “in line” with the RBA’s expectations.
- “All of this suggests that risks of a further rate hike have faded, but neither do recent data imply that rate cuts need to be brought forward from our current expectations. Given the uncertainties surrounding the US election and its aftermath, we think it likely that the RBA will stand pat this time and see how global events play out.”
- Westpac asks “what would it take for the Governor to go back on her earlier statement that rate cuts this year did not align with the Board’s thinking?” It believes the “bar is still too high” with the labour market “resilient”, and the “spending response to the tax cuts” “not zero”. “If things turn out weaker over the next couple of quarters, a faster trajectory for the rate-cutting phase could occur.”
- “Will the RBA hold onto the ‘not ruling anything in or out’ language?”, “How will the RBA revise its assessment of the level of supply, and so spare capacity, in light of recent data revisions?”, “How will the RBA integrate views about energy prices into its forecasts for inflation in 2025 and beyond?” and “How will the RBA’s assessment of upside risks from household spending and the housing market shift?” are key points to watch in November 5’s RBA Statement on Monetary Policy and meeting press conference.
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JGBS AUCTION: Mixed Result For Today’s 2Y Supply
Sep-30 03:50
The 2-year bond supply has demonstrated mixed demand metrics today, as the low price met dealer expectations, which had been projected at 100.005, as per the BBG poll, but the cover ratio decreased to 3.8149x from 5.542x in August. The auction tail was also longer than last month.
- Despite today's auction occurring at a similar outright yield to late August’s level, the bid at today’s auction was significantly weaker than last month.
- It’s important to highlight that shorter-dated JGB yields have risen today, following Ishiba’s unexpected victory in the LDP leadership run-off against Takaichi, a noted BoJ dove.
- Additionally, today's result stands in contrast to the strong demand metrics seen at this month's 5-year auction.
- The cash 2-year yield is little changed in post-auction trade.
JGBS AUCTION: 2-Year JGB Auction Results
Sep-30 03:41
The Japanese Ministry of Finance (MoF) sells Y1.9598trln 2-Year JGBs:
- Average Yield: 0.392% (prev. 0.385%)
- Average Price: 100.014 (prev. 100.028)
- High Yield: 0.397% (prev. 0.387%)
- Low price: 100.005 (prev. 100.025)
- % Allotted At High Yield: 19.5417% (prev. 82.2855%)
- Bid/Cover: 3.8149x (prev. 5.542x)
JGBS: Futures Remain Sharply Cheaper At Lunch Ahead Of 2Y Supply
Sep-30 03:11
JGB futures remain sharply cheaper, -63 compared to settlement levels, at the Tokyo lunch break.
- Outside of the previously outlined IP and Retail Sales data, the market has had news of a general election on October 27th to digest. The new LDP leader Shigeru Ishiba will dissolve the lower house on October 9th (per BBG/NHK). There was speculation on Friday, after he won the LDP leadership run-off, of an early election.
- Cash US tsys are flat to 1bp cheaper in today’s Asia-Pac session after Friday’s solid post-PCE deflator gains.
- Cash JGBs are flat to 5bps cheaper across benchmarks, with a flattening bias. The benchmark 2-year yield is 2.3bps higher at 0.390% ahead of today’s supply.
- Last month’s 2-year Treasury auction showed robust demand, with the low price surpassing dealer expectations and the cover ratio rising to 5.542x.
- Today's auction occurs in the context of an outright yield level similar to late August and roughly 10bps below the cyclical peak reached in early August—the highest since 2009.
- Both the 2/5 and 2/10 yield curves are near their flattest levels over the past 12 months.
- Swap rates are little changed out to the 30-year and 2bps higher beyond. Swap spreads are mixed.
