AUSTRALIA DATA: Credit Growth Trending Higher Despite Restrictive Policy
While the RBA noted in its December meeting minutes that “financial conditions remained restrictive”, it observed that there “were indications that financial conditions were not restraining credit growth as much as had been expected”. The January RBA private credit data were consistent with this view as total credit increased a further 0.5% m/m to be up 6.5% y/y, in line with December and the fastest in almost two years. The February RBA minutes are published on March 4.
- Major sectors have recovered since 2023 with non-financial business credit up 8.8% y/y in January up from 6.7% y/y a year ago and housing +5.6% y/y up from 4.2% y/y. Personal credit remains positive but slowed to 2.2% y/y in January from 2.8% but is in line with January 2024.
- Broad money growth has slowed but is still at 5.2% y/y after 5.3% in December and in line with the 2024 average.
Australia private credit 12m % change
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AUSSIE BONDS: Yield Curve Near Cycle High & 3YY Lowest Since November
The Australian 3/10 cash curve is hovering near its steepest level since early January and above the upper range it had traded in since late 2022.
- The steepening of the Australian curve has coincided with the recent downward movement in the 3-year yield.
- The 3-year yield is down 30bps since mid-January as RBA easing expectations have gathered momentum.
- RBA-dated OIS pricing is 4-7bps softer across meetings after today’s Q4 CPI data.
- A 25bp rate cut is more than fully priced for April (135%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%). February was at 76% before the data.
Figure 1: AU 3/10 Yield Curve (%) Vs. 3-Year ACGB Yield (%)
Source: Bloomberg / MNI - Market News
ASIA STOCKS: Equities Slightly Higher, Majority Of Asia Out For LNY
Asian equities are higher this morning, following Wall Street’s tech-led rebound after a sharp selloff. Japan and Australia led gains, while most regional markets were closed for Lunar New Year. The recovery came as Nvidia surged 8.9%, easing concerns over AI-driven valuations that had rattled investors earlier in the week. Australian inflation data showed a sharper-than-expected slowdown, pushing the Australian dollar lower and fueling bets on RBA rate cuts.
- Japan's TOPIX is up 0.35%, while the Nikkei is 0.50% higher. Australia's ASX 200 is 0.80% higher and New Zealand's NZX 50 is 0.10% higher.
- US equity futures are slightly lower this morning after the NASDAQ jumped 2% overnight, while the S&P 500 close 0.90% higher.
- Markets are watching the Fed's rate decision on Wednesday, where rates are expected to remain unchanged but Powell’s guidance on a possible March cut will be key. Major US tech earnings from Tesla, Microsoft, and Meta are due the same day, followed by Apple on Thursday. The ECB will also announce its policy decision on Thursday, alongside Eurozone GDP and unemployment data. Other notable releases include US Q4 GDP (Thursday), PCE inflation, and employment cost index (Friday), which will shape expectations for Fed policy in 2025.
AUSSIE BONDS: Richer After Q4 CPI Lower Than Expected
ACGBs (YM +6.0 & XM +4.5) are sharply higher after Q4 CPI data came in slightly below expectations across most metrics:
- Trimmed Mean CPI rose 0.5% q/q (vs. est. +0.6%) and 3.2% y/y (vs. est. +3.3%).
- Weighted Median CPI increased 0.5% q/q (vs. est. +0.6%) and 3.4% y/y (vs. est. +3.5%).
- Headline Consumer Prices rose 0.2% q/q (vs. est. +0.3%) and 2.4% y/y (vs. est. +2.5%).
- December's annual headline CPI matched estimates at +2.5% y/y.
- “The trimmed mean excluded price falls in both Electricity and Automotive fuel this quarter, alongside other large price rises and falls.” (ABS)
- Cash ACGBs are 4-6bps richer after the data with the AU-US 10-year yield differential at -15bps versus -10bps pre-data.
- Swap rates are 5-7bps lower, with the 3s10s curve steeper.
- The bills strip is richer, with pricing +4 to +7.
- RBA-dated OIS pricing is 3-7bps softer across meetings after the data. A 25bp rate cut is more than fully priced for April (136%), with the probability of a February cut at 89% (based on an effective cash rate of 4.34%). February was at 76% before the data.
