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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.
STIR
As we noted in our RBA preview, STIR markets are pricing in a more aggressive hiking cycle than economists are expecting, looking for a terminal rate of ~3.85%, with the OIS strip indicating the terminal rate will be hit in June ‘23.
- There has been a shift higher in market pricing over the past month, with the U.S. Federal Reserve’s higher for longer mantra spilling over into wider central bank pricing, although we remain shy of the highs observed back in June, when terminal rate pricing stood at ~4.50%.
- Economists (per a Bloomberg survey) expect rates to peak earlier in Q223, at just over 3%. A reminder that Governor Lowe has said that the neutral rate is at least 2.50%.
- We remain of the view that a terminal cash rate of close to 4% is unlikely, with the “organic” tightening set to be observed in ’23 (via the runoff of the RBA’s TFF scheme and households fixing onto higher mortgage rates) set to provide enough in the way of headwinds for the economy to prevent the Bank from pushing rates that high. The major hawkish risk to this view is that global inflationary pressures become further engrained, pushing the Bank to do more.
Fig. 1: ‘Big 4’ RBA Expectations Vs. The Recent Evolution Of The Cash Rate Implied By The OIS Strip
Source: MNI - Market News/Bloomberg
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
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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