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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
CROSS ASSET
Last week the messaging from the RBA and the Fed could not have been more divergent with RBA Governor Lowe signalling a willingness to consider a policy pause and Fed Chair Powell canvassing the possibility of larger, faster hikes and a higher terminal rate. A commitment to data dependency was seemingly the only common ground.
- A week on and the situation couldn’t be more different with the Silicon Valley Bank (SVB) collapse and concerns of financial contagion delivering dramatic outperformance of U.S. STIR versus AU in terms of pricing out of tightening for the next meeting as well as changes to terminal rate expectations (-150bp Vs. -40bp).
- For Australia (Fig 1), recent events appear to have reinstated a familiar theme for the current tightening cycle, after a temporary departure in February, of the RBA undershooting OIS pricing.
Figure 1: RBA Cash Rate Vs. OIS 6M1M (led 6M)
Source: MNI-Market News / Bloomberg
- For the U.S. (Fig 2), Fed undershoots of OIS pricing have not been part of this cycle so far.
- While the SVB situation may change things, the above charts provide as a timely reminder, ahead of US CPI today and Australian Employment on Thursday, that the respective norms for the current tightening cycles suggest U.S. STIR outperformance versus AU should be seen as temporary.
Figure 2: Fed Funds Rate Vs. OIS 6M1M (led 6M)
Source: MNI-Market News / Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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