EM ASIA CREDIT: Australian Banks: Equities lower, Credit Stable on CPI miss
Australia's core inflation figures for the quarter ending September came in higher than expected. The Q3 trimmed mean rose 1.0% quarter-on-quarter, lifting the year-on-year rate to 3.0%, up from a revised 0.7% quarter-on-quarter (an upward revision of 0.1 pps) and 2.7% year-on-year previously.
As a result, expectations for a rate cut this year have been downgraded. This has weighed negatively on equity markets today, as investors factor in higher-for-longer interest rates, which could dampen economic growth, reduce credit demand, and increase loan delinquencies.
In credit markets, USD bonds are a little softer, with benchmark bonds trading close to the year tights.
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AUSTRALIA: Decent Rally Ahead of RBA
- ACGBs have staged a decent rally today ahead of tomorrow's RBA decision and on headlines that the budget deficit has narrowed.
- Market consensus remains for no change from all of the estimates on BBG currently, with rates set to remain at 3.60%.
- A rally across the yield curve sees lower yields by 3.5-4.5bps with the 10-Yr and 15-Yr the best performers.
- Australia's 10-Yr bond future is up +0.04 to 95.61, below all major moving averages with the 20-day EMA at 95.66.
- The 3-Yr bond future is up +0.04 at 96.42 and is also below all major moving averages.
- This week sees Australia sell A$1.2bn of 2034 bonds on Oct 1, A$1bn 133-day bills and A$1bn 70-day bills on October 2 and A$1bn of 2032 bills on October 3rd.
- There remains only 6bps of cuts priced in over the next month with 16bps over the next three.
BUND TECHS: (Z5) Key Support Remains Exposed
- RES 4: 129.50 High Aug 5
- RES 3: 129.44 High Sep 10 and key short-term resistance
- RES 2: 129.13 High Sep 17
- RES 1: 128.45 20-day EMA
- PRICE: 128.32 @ 05:38 BST Sep 29
- SUP 1: 127.88 Low Sep 25
- SUP 2: 127.61 Low Sep 3 and the bear trigger
- SUP 3: 127.46 1.00 proj of the Aug 14 - 15 - 28 price swing
- SUP 4: 127.13 1.236 proj of the Aug 14 - 15 - 28 price swing
Bund futures are in consolidation mode and are trading closer to their recent lows. Key support and the bear trigger remains exposed, it lies at 127.61, the Sep 3 low. Clearance of this level would cancel a recent bullish theme and confirm a continuation of the medium-term bear cycle. For bulls, a reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is at 128.45, the 20-day EMA.
NEW ZEALAND: BONDS NZGBS: Strong Start to the Week for Bonds
- NZGBs ended Monday with bond yields 2-2.5bps lower across the yield curve.
- A good start to the week for NZGBS as bonds rallied across the curve. Best performance came in the 2-5 Yr which fell over 2bps whilst the 10-Yr was down 2bps also
- Swap rates closed up to 3bps lower in the front end with the 10-Yr lower by 1bps
- Limited key economic data out today with August Filled Jobs SA MoM in line with July at +0.2%.
- RBNZ dated OIS pricing closed little changed across meetings. 25bps of easing is priced for October, with a cumulative 57bps by November 2025.
- Issuance tomorrow will be $100m 105-day bills, $100m 161-day bills and $50m 357-day bills.
