By Kymberly Martin
It was an extremely quiet day in NZ markets yesterday. A similar theme pervaded overnight.
Heading toward next Thursday’s RBNZ meeting the market seems disinclined to take any large bets either way.
The market continues to price around an 85% chance of a 25bps cut in the year ahead, and a 15% chance of a cut next week. Our central case remains the RBNZ is ‘on hold’ for a protracted period.
Alongside yesterday’s fall in inflation expectations, 1-year-ahead house price expectations have picked up momentum. None of this rings alarm bells for the RBNZ but does counterbalance signals to cut that may be coming from recent data softness, and low current inflation readings.
Overnight, US data was fairly uniformly on the positive side of expectations. However, markets’ enthusiasm for a final Greek deal designed to set its debt on a sustainable path was offset by slow progress in US fiscal cliff negotiations.
As a result, US and German ‘safe haven’ yields bobbed sideways at 1.66% and 1.44% respectively.
Italy managed to sell its maximum target of €3.5b of zero-coupon bonds at the lowest yield for two-years. Peripheral European spreads have inched a little tighter, heading back toward their mid-October lows.
It will likely be another quiet day domestically, with no key local data releases. Tonight, the US Fed’s Beige Book will likely acknowledge recent data improvement in the US, though the critical variable for the Fed is the labour market which remains depressed.
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