Daily Flows
- Flows were quiet on Friday, with most activity directed towards AMP, offering 5.10% for 6 months.
- In the fixed income space, there is an opportunity to pick up the floating line, QTC Feb 2028s.
- Domestic NCD margins remain around +45 for 3 months. With most of the workforce back from holidays, we may see elevated loan settlements, which could drive funding demand across the system.
Fed’s Slower Pace Gains More Merit After Strong Labour Market Data
- On Friday night, U.S. non-farm payrolls exceeded expectations, rising by 256k, while the unemployment rate fell to 4.1% (in line with expectations).
- This demonstration of labour market strength saw equities fall and bond yields rise, as traders factored in the possibility of a slower pace of monetary policy easing over 2025.
- Markets are taking a cautious approach, pricing in only approximately 30 basis points of rate cuts for the calendar year.
- Australia finds itself in a different context. With the initial tightening cycle neither high enough nor early enough, the RBA is now holding rates for a considerably longer period to ensure inflation remains under control.
- With the labour market still significantly tight and growth (albeit on a shaky foundation) holding up, the RBA may not be in a hurry to cut rates in February.
- That said, markets and economists have differing views, with ANZ and Macquarie recently forecasting a rate cut in February. Cash traders are also assigning a 70% probability of a cut next month.