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.
“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.”