US TSYS: Marginally Richer In Asia
TYZ3 deals at 108-28+, -0-00+, a 0-07 range has been observed on volume of ~120k.
- Cash tsys sit 1-2bps richer across the major benchmarks, light bull flattening is apparent.
- Tsys have dealt in narrow ranges for the most part in Asia today, the space mostly looked through Japanese and Australian data releases as moves had little follow through.
- Post-CPI highs remain intact for TY. The next target for bulls is 109-20, high from Sep 19. Support comes in at 107-00, low from Nov 13.
- UK CPI provides the highlight in Europe today. Further out we have retail sales, business inventories, PPI and Empire manufacturing. Fedspeak from VC Barr is also due.
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JGBS: Rinban Operations Suggest Slight Pressure On JGBs
This morning’s BoJ Rinban operations saw less negative to positive spreads and generally higher cover ratios (1-3-year: 2.69x, 3-5-year: 2.40x, 5-10-year: 1.70x and 25-year+: 2.73x). On balance, this may generate some slight pressure in early rounds of the Tokyo afternoon session.
BONDS: NZGBS: Closed Richer, Narrow Ranges, Q3 CPI Tomorrow
NZGBs closed 1-4bps richer after dealing in narrow ranges during the local session. The previously outlined Performance Services Index failed to be a market mover.
- The market also seemed to take in its stride the change of government following the weekend’s election. NZ Prime Minister-elect Christopher Luxon is in the position to negotiate with the ACT Party and the NZ First Party to form a stable government after his National Party secured the most seats in the election.
- The swaps curve closed with a twist-flattening.
- Tomorrow, the local calendar sees Q3 CPI. Bloomberg consensus expects +1.9% q/q and +5.9% y/y versus +1.1% and +6.0% in Q2. Q3 is expected to be boosted by higher accommodation and insurance prices plus increased government charges including public transport. The RBNZ is likely to look through the data if it’s in line with expectations as it forecasted a strong Q3 outcome of 2.1% q/q and 6% y/y in August, higher than the Bloomberg consensus. Also, at its October meeting, it said it was focused on the medium term.
- Nonetheless, easing inflation may spur investors to dial back their expectations for another rate hike. RBNZ dated OIS pricing is 1-2bps firmer today, with terminal OCR expectations at 5.72% (+22bps).
NEW ZEALAND: RBNZ Expecting Strong Q3 CPI Print
Q3 CPI prints on Tuesday and is expected to show a jump in quarterly inflation with both tradeables and non-tradeables expected to post larger rises than in Q2, implying that the increase is not just an oil story. Q3 is expected to be boosted by higher accommodation and insurance prices plus increased government charges including public transport. The RBNZ is likely to look through the data if it’s in line with expectations as it forecast a strong Q3 outcome of 2.1% q/q and 6% y/y in August, higher than the Bloomberg consensus. Also at its October meeting it said it was focused on the medium term.
- Headline CPI is expected to rise 1.9% q/q and 5.9% y/y after 1.1% and 6% in Q2 with most quarterly estimates between 1.8% and 2.2%. Of the local banks Westpac and Kiwibank are in line with consensus but others see upside risks - BNZ expects +2.1% q/q and ASB & ANZ +2.2%.
- The RBNZ’s measure of core inflation has been stuck at 5.8% for the last three quarters, its series high, and markets will be looking for some moderation to reassure that the RBNZ is firmly on hold.
- Non-tradeable CPI is expected to rise a stronger 1.8% q/q up from 1.3% in Q2. ASB and BNZ are in line with consensus but Westpac is below at 1.7% and Kiwibank at 1.6% but ANZ higher at 1.9%.
- Tradeables CPI in Q3 is projected to rise 2.4% q/q after 0.8%. ANZ and ASB are higher forecasting 2.5% and 2.9% respectively, while Westpac is in line and BNZ & Kiwibank lower at 2.3%.
