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Swap rates are 8-10bps higher, with the 2s10s curve flattening after the latest NZIER QSBO pointed to a stronger economy alongside elevated pricing intentions for Q3. 

• RBNZ Chief Economist Paul Conway also reiterated that further policy tightening will likely be required, citing persistent inflation pressures and a stronger-than-expected recovery, reinforcing Governor Breman's message following last week's rate hike.
• Ahead of the 8 July RBNZ decision, we highlighted upside potential in the 2-year swap rate, which was trading around 3.375%.
• At the time, the May cycle high of around 3.70% sat roughly 55bps above the implied peak OCR, broadly in line with the average peak spread observed in previous tightening cycles.
• However, that historical average obscures an important pattern: the 2-year swap rate has typically peaked around the final rate hike, rather than ahead of the first hike.
• We therefore identified an initial upside target of a retest of the recent cycle high near 3.70%.
• With the expected peak in the OCR now around 3.50%, a move in the 2-year swap rate towards 4.00% appears achievable based on historical relationships.

Figure 1: 2-Year Swap Rate Vs. OCR

Source: Bloomberg Finance LP / MNI

• The PBOC issued CNY236.5bn of 7-day reverse repo at 1.4% during this morning's operations.
• The PBOC issued no  O/N reverse repo
• Total maturities today CNY10bn and CNY0bn O/N
• Net Liquidity injection CNY226.5bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Daily Pledged Repo DR007 Wgtd Rate is 1.400% vs prior close of 1.4021%.
• The China overnight interbank repo rate is at 1.3828%, from the prior close of 1.3756%.
• The China 7-day interbank repo rate is at 1.400%, from the prior close of 1.4084%
• The 2-Yr NDIRS is currently at 1.4047%, from 1.3985% yesterday.  

The turn in retail petrol prices and thus also the misery index may be helping Westpac consumer sentiment to stabilise. This was also the first reading since the RBA held rates in June. In July confidence rose 4.1% to 83.9 and is now 4.7% above the recent low recorded in April, but it remains well in depressed territory. Apart from being mildly optimistic in November, households have been pessimistic for over 4 years. It is worth noting though that they can say one thing and do another and data show they will spend when prices are right.

• Higher oil prices over the last week in response to the resumption of US-Iran hostilities and rising retail fuel prices due to this and the 16c increase in fuel duty could weigh on sentiment going forward. The dashing of hopes that the conflict was ending may also be a negative.
• This is a distinct possibility given that family finances remain weak making households vulnerable to bad news. The year ahead outlook rose 13.4% to 96.5 signalling a some improvement is expected.
• Unemployment expectations fell 7.1% to 129.9, below the long-run average, as signs that the RBA may now be on hold likely improved households’ perception of the jobs market.
• “Time to buy a dwelling” continued to recover rising 5.3% but Westpac notes is still almost 50 points below the historical average.
• “Time to buy a major household item” appears to have stabilised rising for a second straight month but at 86.6 is weak and well below the average at 126.6. 

Australia Westpac consumer confidence vs "time to buy a major household item”

Source: MNI - Market News/LSEG