By Kymberly Martin
Ending a week of positive domestic data surprises, Friday’s stronger-than-expected retail sales data was sufficient to boost NZ swap yields a further 2-5bps.
The market ended the week fully pricing a 25bps rate hike from the RBNZ by 12 months’ time. We continue to expect a first hike in December and steady hikes thereafter.
On the week, swap yields were up 13-20bps across the curve, with a steepening bias to the curve. The 2-10s swap curve, at 115bps, is approaching the top of the 95-120bps range we expect to hold for much of H1.
Overnight on Friday, US 10-year yields traded a familiar pattern. After a stronger-than-expected Empire Manufacturing number yields attempted to break higher. However, they failed to maintain upward momentum above 2.03%, falling back to end the week at 2.00%.
This week provides a fairly modest array of NZ data releases. We will look for today’s BNZ Performance of Services index to move more comfortably above the breakeven mark of 50, from 51.5 in December.
Today the LGFA (local government funding agency) will also announce the details of its 10th tender, to be held on Wednesday. We expect demand at auction to be solid, in line with previous auctions.
Offshore, it is a week for minutes. The RBA, BoE and US Fed all release the minutes of their last meeting this week.
Comments from the RBA will be important in influencing pricing for RBA cuts that now sit at 36bps in the year ahead.
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