SOUTH KOREA: BOK’s Pledge Appears to be Working.
- Yesterday the BOK pledged to use a variety of measures to keep financial markets stable.
- The BOK undertook to increase short term liquidity and take ‘active’ steps in currency markets as needed to ensure stability (as per press statement post emergency BOK board meeting).
- Bond futures have opened strongly again today with Korea’s 10YR Future +0.25 at the open and the 3YR Future +0.05.
- Bond yields are lower across the curve. 2YR 2.770% (-0.5bp); 5YR 2.627% (-0.2bp); 10YR 2.761% (-0.9b)
- Looking at 1-year lows in yield, the front end is approximately 3-5bps above the 1-year lows and the 10 year has been bouncing off the 1 year low.
- Over the course of the next 12 months, the Korean bond market has already priced in -83bps of cuts.
- Looking at the period post GFC 2009 to pre-COVID 2020 as a normalized period for Korean monetary policy sees an average of 2.13%, roughly like what is priced in at present.
- So, what could alter the course for rates?
- For now, the BOK Governor has said that it is unlikely they will cut interest rates in an out of cycle meeting, playing down the impact on the broader economy.
- However, the start of this current BOK easing cycle came due to (among other things) concerns for a slowing consumer and this latest political development is likely exacerbate that trend.
- What is not priced in and poses a potential risk for bond investors is a more aggressive BOK when next they meet on January 16, 2025.
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RBA: Consensus Expecting Easing Cycle To Start In Q1 2025 With 25bp Per Quarter
Analysts unanimously expect the RBA to keep rates unchanged at 4.35% when it announces its decision at 1430 AEST today. There are differences going forward though. Consensus is expecting the first rate cut in Q1 2025, likely on February 18, but there are still a number who don’t think it will be until Q2, likely May 20. If there are few significant changes to the November statement/forecasts then an extension of the prolonged hold is likely, but any softening of tone may signal an increased possibility of a February cut.
- Most economists expect easing to be gradual with 25bp per quarter in 2025 or less.
- CBA was the last of the domestic banks to expect a rate cut this year but it pushed that out to February following the Q3 CPI data, which it said did not show enough of a moderation in trimmed mean inflation for the RBA to ease in 2024.
- HSBC is only forecasting 50bp of easing in 2025 with the cycle starting in Q2 but it believes that there is a risk it could be later or that an easing cycle could be missed altogether. NAB expects a 25bp cut in February but also believes that the risks are skewed to a later start.
- In contrast, Goldman Sachs sees the risks tilted to earlier and faster easing than its expectation of a February start with 25bp per quarter with 35bp in Q4.
Sell-side OCR expectations bp
MNI: UK BRC OCT BY VALUE SHOP SALES LFL +0.3% YY, TOTAL +0.6% YY
- MNI: UK BRC OCT BY VALUE SHOP SALES LFL +0.3% YY, TOTAL +0.6% YY
UK DATA: BRC-KPMG Retail Sales Edged Up But Remain Subdued
UK total retail sales in October edged up 0.6% Y/Y, a softer pace of growth compared to September's solid reading of 2.0% Y/Y (also matched by a solid reading in the official ONS series - although the food vs non-food split was not reflected). Like-for-Like sales rose 0.3% Y/Y (vs 1.7% prior).
- The underlying trend shows sales remain subdued. Non-Food sales in the 3-months to October are the highest since June 2023 but Y/Y growth remains negative at -0.1% Y/Y. This is a value rather than volume series, so the change in sales figures also reflect changing inflationary trends.
- Food sales rose 2.9% Y/Y in the three months to October but remain impacted by low food price inflation.
- Data covers 29 September - 27 October 2024.
