BONDS: NZGBS: Softer Yields, Sep Card Spend Down, RBNZ Eases LVR
NZGB yields have held modestly softer across most of the benchmarks as Tuesday's session unfolded. Outside of a steady 2yr at 2.60%, most other parts of the curve are close to 1bps (although the 10yr is little changed at 4.075%). This comes despite US Tsys resuming cash trading with a firmer bias, this has faded as the session progressed, with fresh China shipping curbs on the US weighing on risk appetite (10yr back under 4.04%). Earlier data showed card transactions falling in Sep, while the RBNZ adjusted loan regulations (essentially easing NZ financial conditions), helping relative NZ yield trends.
- The NZ-US 10yr rate differential is slightly lower, last at +5bps, up a touch from recent lows sub 0bps. So far in Oct, this spread hasn't been able to sustain +10bps levels.
- New Zealand 2yr swap is near 2.37%, little changed for the session, but still close to recent lows near 2.35% and maintaining a downtrend bias.
- September retail card transactions fell 0.5% m/m after rising 0.6%, the first negative after three consecutive increases. Annual growth slowed to 1.2%. Despite the soft end to Q3, the quarter saw a 0.6% q/q increase in nominal retail spending.
- The Reserve Bank of New Zealand will ease mortgage loan-to-value ratio (LVR) restrictions from Dec 1, increasing the share of new lending allowed at higher LVRs, the central bank said in a statement Tuesday. For owner-occupiers, the limit on loans with an LVR above 80% will rise to 25% from 20%, while for investors, the limit on loans with an LVR above 70% will increase to 10% from 5%.
- Looking ahead, Thursday delivers Sep food prices, ahead of the all important Q3 CPI, out next Monday.
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
