RBNZ: Global Events Suggest Policy Could Become Stimulatory
May-28 02:53
The RBNZ cut rates 25bp to 3.25% following a vote that included an option to leave rates unchanged. The vote wasn’t unanimous with one dissenter. There appears to be some disagreement over the impact of increased trade protectionism on NZ inflation. Despite this, the OCR path was revised down to show a trough 25bp below February’s at 2.85%, which signals that the impact of current global developments would require stimulatory policy by end-2025.
- The arguments to cut rates included inflation is within the 1-3% target band, core and wage inflation are moderating, significant spare capacity persists, domestic inflation is impacted by higher administered prices, and growth and inflation are projected to be lower due to global events.
- In terms of staying on hold, the MPC considered that it would have more time to assess the impact of elevated uncertainty on behaviour, will help inflation expectations to return to the band mid-point, and “guard against” risk of higher inflation from a tariff-related supply chain shock.
- Given the outcome of US trade negotiations remains highly uncertain, the RBNZ ran two scenarios with different impacts on NZ inflation – significant rise in global production costs increasing imported inflation and weaker global growth & trade diversion reduces imported inflation.
- Global developments drive the RBNZ’s downward revision to growth and inflation. GDP is revised lower in 2025 but then is expected to be higher in 2026. The economy is still assumed to recover with end-2025 growth at 1.8% y/y and 2.9% Q4 2026 after -1.1% in Q4 2024. It believes that it continues to be “well placed” to respond to events.
- Q2 2025 inflation was revised up 0.2pp to 2.6% y/y but Q4 is 0.1pp lower at 2.4% and Q4 2026 at 2.1%.
- The OCR troughs at 2.85% in Q1 2026 with 25-50bp of easing in Q3 2025. Rates are assumed to return to around ‘neutral’ in 2027.
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CHINA: Bond Futures Up as Equities Down
Apr-28 02:44
- China’s bond futures were up modestly on Monday as equities were marginally down.
- The 10Yr bond future is up +0.09 to 108.895; moving above the 20-day EMA of 108.70.
- The 2Yr bond future is up +0.02 to 102.33 and remains firmly below all major moving averages, the nearest being the 20-day EMA of 102.44.
- Despite this morning’s move, all major moving averages for the 2Yr are pointing downwards, a sign that the bearish momentum remains in place.
- China’s bond market has come off the back of a very quiet week last week, with limited movement and the CGB 10Yr is -1bp lower in this morning's trading at 1.65%
- The week ahead the focus is on the PMI’s tomorrow.
AUSSIE BONDS: Richer & At Bests On A Data-Light SEssion
Apr-28 02:30
ACGBs (YM +3.0 & XM +5.5) are richer and at Sydney session highs on a data-light day.
- Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after Friday’s solid.
- “The Australian economy will expand 1.9% in 2025, 2.3% in 2026 and 2.5% in 2027, according to a survey conducted by Bloomberg News. The chance of a recession happening over the next 12 months is 15 percent, according to 14 respondents. 2025 CPI forecast at +2.5% y/y versus prior survey +2.6%. RBA Central Bank Rate seen at 3.85% by end-2Q25, current rate is 4.10%.”
- Cash ACGBs are 4-7bps richer with the AU-US 10-year yield differential at -7bps.
- Swap rates are 6-8bps lower, with the 3s10s curve flatter.
- The bills strip has bull-flattened, with pricing -2 to +3.
- RBA-dated OIS pricing is flat to 6bps softer across meetings today. A 50bp rate cut in May is given a 12% probability, with a cumulative 118bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- The AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Friday.
AUSTRALIA: Polls In Line With 2022 Election Signalling A Return Of Labor
Apr-28 02:19
The polls in the second half of April have been fairly steady with the average 2-party preferred estimated at 52.5% to 47.5% where it has been through the election campaign and close to the May 2022 result. If the surveys have accurately gauged voting intentions, then the incumbent centre-left Labor government (ALP) may retain a small majority but given that there is unlikely to be a uniform swing given the strength of local issues this time, it could easily find itself with a minority.
- Opinion poll results in the second half of April range from 50:50 (Freshwater) to 56:50 in favour of the ALP (Roy Morgan). A poll hasn’t shown the centre-right opposition LNP in front since late March (Freshwater).
- In terms of the primary vote, the average is showing the LNP on around 35% (+1pp from first half of April), ALP 34% (+2pp), Greens steady on 13%, One Nation 8% (+1pp) and others (includes green Teals) 12% (-1pp). Given standard errors around polling, these results are in line with the 2022 results.
- The Australian’s Newspoll shows that PM Albanese remains the preferred PM with 51% support with the opposition leader Dutton on 35%. Voters are net unsatisfied with both leaders with Albanese steady on -9% but Dutton down 2pp to -24%. Despite these results, only 39% of respondents believe that the government deserves to be returned but this is up 5pp on February. However, 62% think that the opposition LNP is not “ready to govern” up 7pp.
- Given that the ALP looks likely to retain government, it is worth noting that S&P warned that Australia’s AAA credit rating is threatened by the government’s large increase in off balance sheet spending. The Australian observes that it plans to increase this type of expenditure by close to $85bn over the coming 4 years.
