BONDS: NZGBS: A Touch Cheaper To Start
NZGB yields nudge higher, in sympathy with moves witnessed in short to intermediate U.S. Tsys since Thursday’s local close, leaving the major benchmarks 2.5-4.5bp cheaper across the curve, with some light steepening apparent.
- Swap rates are 2bp higher across the term structure, leaving swap spreads tighter at the margin.
- The major short dated RBNZ dated OIS pricing points are little changed vs. late Thursday levels. Just over 65bp of tightening is priced for the Feb ’23 meeting, with a terminal OCR of ~5.40% eyed.
- In terms of local data flow, Q3 saw a firm round manufacturing activity, while monthly total card spending data saw a modest fall in November. The latter comes after the RBNZ suggested that consumers need to “cool their jets.”
- Chinese inflation data presents the key regional economic release during the final Asia-Pac session of the week, while COVID headlines out of China/Hong Kong will continue to be eyed with interest.
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BONDS: NZGBs Back The Other Way
Cash NZGB yields have shifted ~10bp lower after U.S. Tsys richened on Tuesday, reversing the bulk of yesterday’s cheapening.
- Early Wednesday hours bought news from the Treasury that the new green NZGB May-34 will launch next week (sized at NZ$2-3bn).
- RBNZ dated OIS is softer at the margin, in sympathy with the above move, as terminal OCR pricing comes in a touch to just below 5.40% after printing at ~5.45% late yesterday. ~70bp of tightening is still priced for this month’s meeting, marginally softer than rates which prevailed late yesterday.
- Local data has seen another uptick in card spending (M/M), although the rate of growth moderated in both total and retail spending.
- U.S. midterm election results will be eyed as we work through the session.
- Looking ahead, Thursday will see the release of the RBNZ’s Review and Assessment of the Formulation and Implementation of Monetary Policy, with manufacturing PMI data and the weekly round of NZGB issuance also slated.
US: MIDTERMS: Republicans Make Early Inroads In Guam
The GOP has kicked off the midterm elections by capturing a seat from Democrats in Guam - a district which has been Democrat-controlled since 1993 when it was first established as non-voting House district.
- Republican candidate James Moylan defeated Democrat Rep Judith Won Pat 52.2% - 47.2% for the seat of outgoing delegate Michael San Nicolas.
- Guam is 15 hours ahead of Washington and is not usually considered a bellwether race but Republicans will be buoyed by the result in a district which Biden would have carried by 13 point in 2020.
- Note: Guam doesn't have an electoral college vote so that margin is based upon polling rather than voting data.
- The Guam-at-large district is majority Catholic and has long had tensions over abortion, with the Department of Public Health and Service reluctant to provide the procedure.
AUD: AUDUSD Breaks Key Resistance But Struggling To Maintain It
The AUDUSD rallied overnight to a high of 0.6551, highest since September 23, on better risk appetite and a weaker USD driven by lower yields. But it fell back, as crypto headwinds drove a pullback in risk, and AUD is now trading just above 0.6500. AUD crosses generally finished the session in line with the previous close.
- Overnight AUDUSD broke through key short-term resistance of 0.6522 and also 0.6547, the October 4 high, strengthening the bullish case. But it couldn’t hold it and fell back to below 0.6500 before recovering back to that level. A break through November 3’s 0.6272 would reinstate the bearish threat.
- Equity markets were stronger across the board with the S&P 500 up 0.6%, the third consecutive rise, and the Eurostoxx +0.8%. The VIX finished the day almost a point higher at 25.4%. Oil prices were weaker with WTI down 3.2% and back below $90/bbl to $89.30 driven by fears of reopening delays in China after more Covid cases were reported. However metals were generally up with copper rising 1.7% as the market remains tight. Iron ore ticked up to just under $89.
- RBA Deputy Governor Bullock speaks at 20:05 AEDT on “The Economic Outlook”. The event can be viewed here. While that is all in Australia today, results from the US mid-term elections will be coming out through the day.
