Soft Wages Vs. Global Factors

A second-half reversal leaves YM -2.0 and XM -1.0 by the close after follow-up selling from the release of the FOMC minutes & weakness in NZGBs guided ACGBs lower early. Cash ACGBs close 1-2bp weaker with the 3/10 curve 1bp flatter.

• Swap rates are 2-3bp higher with 3-year underperforming.
• Bills close mid-range, 1-5bp weaker through the reds.
• RBA-dated OIS strip unwinds a part of yesterday’s soft WPI-induced move, firming 5-7bp for meetings beyond July with November leading. Terminal rate pricing pushes back to 4.27%. March meeting pricing remains at a 95% chance of a 25bp hike.
• On the local docket, Q4 Capex spending and investment intentions print stronger but fails to sustain an impact. Translation of this data into a market move tends to be more difficult during periods of high inflation because the price/volume split is unknown.
• Next week sees the local calendar deliver a batch of quarterly partials leading up to Q4 GDP on Wednesday. January reads on Retail Sales and Private Sector Credit are also due early in the week.
• Until then, the market is likely to be guided by abroad, with today's session throwing up a few questions about the longevity of yesterday's WPI-induced rally. ACGBs nonetheless delivered another 12bp outperformance versus NZGBs.