RBNZ: VIEW: Westpac: No Room For Relenting
In the wake of today’s labour market report Westpac note that “the Reserve Bank was already braced for some strong wage outcomes, so today’s results don’t necessarily increase the risk of a large OCR increase at the next review later this month. However, they do highlight the extent of the challenge that the RBNZ faces in bringing inflation pressures under control – there is no room for relenting on the path to higher interest rates yet.”
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BONDS: NZGBs A Touch Firmer To Start The Week, RBNZ In View
NZGBs have started the week on the front foot, with the major benchmarks running 2-7bp richer across the curve, in a bull steepening move.
- This comes after Friday’s cheapening, with the space likely leaning on the richening observed in in UK Gilts on Friday.
- The RBNZ monetary policy decision headlines the domestic docket this week. The tone of the Bank’s statement will be key, with all of those surveyed by BBG looking for a 50bp hike in the OCR. Such an outcome is fully discounted by markets.
- Structurally, BNZ note “as we enter October, domestic focus is likely to shift to NZGBs’ forthcoming entry into the FTSE-Russell WGBI on 1 November. We have previously estimated there might be around NZ$2bn of offshore inflows into the government bond market in the first month of index inclusion and possibly up to NZ$4bn over the first three months, mainly from so-called ‘passive’ funds which seek to replicate the underlying benchmark.”
AUSSIE 10-YEAR TECHS: (Z2) Remains Vulnerable
- RES 3: 97.455 - High Mar 18
- RES 2: 97.185 - High Apr 5
- RES 1: 97.040/099 - High Aug 03 / 200-dma
- PRICE: 96.150 @ 14:50 BST Sep 30
- SUP 1: 95.865 - Low Sep 27
- SUP 2: 95.805 - 3.0% Lower Bollinger Band
- SUP 3: 95.670 - Low Jun 17
Aussie 10yr futures finished the week close to the highs, extending the bounce off 95.815 printed mid-week. Nonetheless, the over-arching bear cycle remains intact and paves the way for weakness toward 95.670, the Jun 17 low. Moving average studies are in a bear mode set-up, highlighting a bearish theme. Key resistance is at 97.040, the Aug 3 high.
US TSYS: Futures A Touch Firmer To Start
TYZ2 deals a little above its late Friday base, -0-03 at 111-31.
- Broader weekend news flow was dominated by the continued fallout from the fiscal situation in the UK, a positive military advance for Ukraine and increased speculation re: a sizeable production cut from the OPEC+ group when it meets later this week.
- Friday saw the curve bear flatten, with the major benchmarks running 5-8bp cheaper across the curve, with 2s leading the weakness.
- Bearish pressure became evident into the bell, with a lack of month-/quarter-end support observed.
- Note that 2-/10- & 5-/30-Year yield spreads didn’t get anywhere near challenging their respective cycle troughs.
- Softer than expected MNI Chicago PMI data had helped support the space in the latter rounds of NY morning dealing, providing some counter after stronger than exp. PCE data ate away at the early Gilt-driven bid.
- Technically, the broader tone remains bearish, with bearish conditions in the TY contract reinforced and focus on the cycle peak in 10-Year yields, which lies just above 4.00%.
- Holidays in China & parts of Australia will thin out wider liquidity during Asia-Pac hours.
- Regional manufacturing PMI data presents the highlights of a light Asia-Pac docket.
- The ISM m’fing survey and Fedspeak from Williams & Bostic headline the NY docket.
