Australia: Not Yellen Yet, Just Hinting – ANZ
Research Team at ANZ, suggests that low volatility, even lower bond
yields globally, and tighter credit spreads have provided a favourable
backdrop for Australian corporates to issue and investors hungry for
yield are providing a willing buyer.
Key Quotes
“Corporates have timed the markets well, taking advantage of easier
financial conditions as markets put low odds on further Fed tightening.
But risks are now turning. Pricing for the Fed has risen sharply this
week and the risk for the AUD market would be to see higher rates in the
short term if USD rates push higher. In our view, this would present an
opportunity to add to short AUD positions in the FX market, and to long
positions in rates, particularly ahead of the record maturities in
June.
RBA View: While the RBA Minutes did not manage to
satiate markets’ hunger for further validation of the Bank’s easing
bias, we remain comfortable with the view that further easing is on the
way. Wages data have reaffirmed the soft pulse seen in the CPI, and the
ANZ Stateometer and employment numbers are showing that activity
momentum is fading, though from elevated levels. With one more cut
priced in for 2016, there are still more downside risks for both STIRT
and the AUD.
Global Macro: The front end in the US has finally
started to move. After more hawkish minutes, a stronger US inflation
print, and a raft of Fed speakers warning of the possibility of up to
two hikes this year, June and July are becoming more actively priced.
Keep an eye on: Upcoming speeches from Fed Chair Yellen
(early June) and Vice Chair Fischer (tonight) will be critical to
market expectations of the Fed. The PEFO will be released on Friday with
the most up to date Australian economic forecasts.”