AUSTRALIA: CBA Look For Employment To Grow Around Recent Trend
CBA note that “the September labour force survey printed softer than expected, with employment essentially flat in the month and the unemployment rate unchanged. We expect employment rose by 15K in October, around the recent trend pace of employment growth. But we expect the unemployment rate ticked up slightly to 3.6% with the participation rate unchanged at 66.6%.”
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BONDS: RBNZ Repricing Weighs On NZGBs Post-CPI
Firmer than expected Q3 CPI data (more details in previous bullets) shifts NZGBs into cheapening territory, as the major benchmarks run 6.5-10.0bp cheaper across the curve, with bear flattening in play as RBNZ rate hike expectations are repriced.
- RBNZ dated OIS has shifted to pricing ~70bp of tightening at next month’s decision, an 80% chance of a 75bp step, while terminal OCR pricing has shifted to just below 5.25%, just over 20bp firmer on the session.
- Swap spreads run wider across the curve, pointing to payside flow in swaps helping the move in NZGBs.
- 2-Year NZ swap rates have registered a fresh cycle high of 5.14% in the wake of the CPI release.
NEW ZEALAND: Rising Inflation Risks Further Outsized RBNZ Hikes
NZ CPI for Q3 exceeded the upper end of expectations rising 2.2% q/q to be 7.2% y/y after 1.7% q/q and 7.3% in Q2. This data is likely to be concerning for the RBNZ, especially the non-tradeable component, and so it’s unlikely it will pivot at the November 23 meeting.
- Both non-tradeable and tradeable CPIs rose more than expected at 2.0% q/q and 2.2% q/q, respectively, to 6.6% y/y and 8.1% y/y. Non-tradeable inflation reached its highest annual rate since the series began in 2000, which suggests increasing domestic inflation pressures. Therefore, the RBNZ aren’t about to reach its terminal rate despite being one of the first central banks to tighten.
- The main drivers of the outsized inflation move were housing- and utilities-related components. The cost of building a new home has soared. Food and transport costs were also contributors. Services inflation also rose to 5.1% y/y from 4.3%, the highest since 1995 and another indicator of building domestically-driven inflation.
Source: MNI - Market News, Refinitiv, Statistics NZ
US TSYS: Early Strength Gives Way During NY Hours
TYZ2 deals around late NY levels, +0-01+ at 110-24, looking through the firmer than expected NZ CPI data.
- Tsys initially firmed on Monday, aided by the well-documented UK fiscal U-turn and the related, sizeable rally in Gilts, before fading off best levels in NY hours, with no headline driver apparent. This left the major cash Tsys 6bp richer to 3bp cheaper come the bell, as the curve twist steepened, pivoting around 20s.
- The move away from best levels of the day gained further traction after the London market close, with block sales in FV (-5.5K) & US (-3.0K) futures helping.
- Some desks flagged continued liquidity issues as at least a bit-part player in the move away from best levels, with price-insensitive players stepping away from the space in recent months, while those that are more price elastic haven’t really shown their hand, at least not yet.
- A couple of rounds of RBA communique provide the highlight of the docket during the remainder of the Asia-Pac session, what with the release of Q3 Chinese GDP and monthly economic activity data being postponed indefinitely.
- Tuesday’s NY docket will see the release of industrial production data, as well as TIC flows and the NAHB housing market index. We will also get Fedspeak from Bostic & Kashkari.
