By Kymberly Martin
NZ swap heading into this morning’s RBNZ meeting. The market prices around a 55% chance of a 25bps OCR hike by year-end. We continue to expect a first 25bps hike in December.
Key today will be the relative emphasis the Bank puts on opposing economic forces. e.g. the negative impact of the widespread drought vs. increasingly widespread house price pressures, rising credit growth, and activity in Christchurch which seems to finally be ramping up.
Any discussion of macro-prudential tools (as a complement to the OCR) will also be dissected with great interest. At the margin, use of such tools could imply less pressure to raise the OCR.
Overnight, US long yields popped higher after strong US retail sales data. US 10-year yields jumped form 2.0% to 2.05%. However, once again the glass ceiling seems to have appeared at this level and yields have subsequently returned to trade at 2.02%.
Italy failed to sell its maximum target of sovereign bonds overnight. The average yield on the 3-year bonds was also 2.48%, above the 2.30% paid at last month’s auction.
Italian-German 10-year bonds spreads ticked a little higher to 319bps. They remain around 70bps above their January, pre-election lows.
While all eyes will be on this morning’s RBNZ meeting and full Monetary Policy Statement, the key across the Tasman will be AU employment data.
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