Off Lows Into RBA, 50bp Hike Widely Expected

The ACGB space operates off of session cheaps, with e-minis back from highs, Chinese equities in the red, crude back from best levels and no real progress observed in the latest phone call between senior U.S. & Chinese policymakers (after a knee jerk risk-on move was seen on the back of confirmation that the phone call between Yellen & Liu He took place). That leaves YM -7.0 and XM -4.0, with the bear flattening impulse witnessed across much of the session still in play. Bills sit 8-12bp cheaper across the curve, also bear flattening. We are now ~15 minutes out from the latest RBA decision, with most of those surveyed (25/26 in the BBG survey) looking for a 50bp move. BBG WIRP points to ~45bp of tightening being priced into the STIR space, with markets currently pricing a cash rate of ~3.20% come the end of the Bank’s December meeting (which still looks a little aggressive in our view). Assuming the Bank does meet wider expectations and deploys a 50bp rate hike, it will be any language surrounding the prospect of further tightening that shapes the wider market reaction.