The local rates market reaction to the employment data was fairly modest, with the 2-year swap rate ending the day just 2 bps higher and pricing for the first rate hike still in the distant future in early-2019. The 10-year swap rate closed up 3 bps to 2.18%.
This morning saw the embargoed released of QV NZ house price data. Prices rose by just 3.9% y/y in October, a 5-year low, dragged down by a 0.6% fall in Auckland house prices. No real surprise there.
In other news, the long-awaited US tax bill has been delayed by at least another day as Republicans argue over the plan. This is keeping a lid on US equities. The US ISM was slightly weaker than expected, but coming off a 13-year high it didn’t really raise any eyebrows. ADP employment rebounded and sets the scene for a hurricane-affected 300k+ leap in US employment in Friday’s release.
US 10-year yields hovered around 2.39% and failed to break the 2.40%, before a refunding announcement helped send rates lower. The US Treasury will keep longer-term debt issuance unchanged at $62 bln for the seventh straight quarter but indicated a likely rise next quarter as funding needs increase. There was no comment on issuing ultra-long bonds. The 10-year rate sits at 2.36%, down 3 bps from the local close.
The focus tonight turns to the BoE rate decision. A 25 bps hike, the first in a decade, is well priced with attention on whether the Bank sees this as a one-off or the series of hikes ahead. The market currently believes that another rate hike won’t come until the second half of next year.
Trump will announce the next Fed chair sometime tomorrow morning NZ time, with the smart money on current Fed Governor Powell, which should be well-anticipated. If Taylor got the nod then we’d probably see a knee-jerk reaction of higher US rates and a higher USD.
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Jason Wong is on the BNZ Research team. All its research is available here.
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