By Kymberly Martin
NZ swap yields continue to bob around at the upper end of ranges. Offshore yields are consolidating in fairly stable markets.
Friday’s NZ CPI data came in below consensus expectations at just 0.9%y/y. Although we see inflation picking up into year-end we expect it to remain subdued for the next couple of quarters.
We anticipate a tick down to 0.8%y/y for Q1. NZ yields initially slipped a little lower on the release but have settled at familiar levels, still at the upper end of well-established ranges. 2 and 5-year swap sit at 2.80% and 3.24% respectively.
The market continues to take out ‘insurance’ against the chance (15%) of a RBNZ cut in the year ahead. However, the market prices a 20% chance of the OCR being 25bps higher by year-end. We expect a 25bps hike in December.
Offshore, US 10-year yields ended last week at 1.84%. Market sentiment remained fairly robust, but there was a lack of catalyst to prompt a break higher in yield.
The market seems lulled back into the sense the Fed won’t be tampering with its ultra-easy monetary stance any time soon.
In the lead up to the next RBNZ meeting on 31 January, it is a fairly quiet data schedule for NZ this week. The highlight will be the BNZ PMI on Thursday. We’d be surprised if it was weaker than November’s 48.8 reading, rather looking for some improvement.
Elsewhere, there are two central bank meetings to watch this week, the Bank of Japan today, and Bank of Canada on Wednesday.
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1 Comments
Low interest rate is part of the reason our housing prices sky rocketed. Many Canadians are benefiting from this by buying and selling to make money and paying off debt. Mr. Carney is doing a good job of keeping the interest rate low and asset price high. Many American and foreign economist predict our home price would collapse but that has not and will never happen. Vancouver suburb home owners see their assessment drop but still hold their asking price for their home high an d making people apply for loans with no credit check. I encourage sellers to sell higher and buyers to buy higher.
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