By Kymberly Martin
NZ swaps yields have pulled back around 4bps since their highs earlier in the week.
NZ 2-year swap now sits at 2.93%. The market prices around a 50% chance of the OCR being 25bps higher by year-end.
Domestically, the key today will be the release of the HLFS, and specifically the unemployment data.
We along with consensus expect the rate to tick down to 7.1% (from 7.3%). This would be more aligned with the general trend improvement seen in other labour market indicators.
But the series is notoriously ‘noisy’ so a surprise either way is possible. Expect a market response, as it is likely more sensitive than usual to surprises in this data.
Equally important will be unemployment data released across the Tasman today. The market now sees 40bps of RBA cuts in the year ahead, with a 55% chance of a cut at the March meeting.
Overnight, US 10-year bond yields continued their current consolidation around 2.0%. Peripheral European spreads to German bonds have continued to creep higher.
Tonight, all focus will be on Europe. Both the BoE and ECB announce target rates. Both are expected to remain unchanged, but all focus will be on President Draghi’s comments at the associated press conference.
Spain also returns to market to auction bonds. This should provide a good barometer of how deep the current more cautious tone toward peripheral sovereign risk has become.
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