Daily Flow

• For the month of April, there was a -$12Bill funding gap across the banking system.
• That is, loans is exceeding deposits by $12Bill which means banks are having to chase funds to reduce this gap.
• This may be reflected in the current wholesale TD and NCD market with banks offering elevated rates to attract.
• Levels above 5% from 6 months – 5 years is commonplace for term deposits. NCD margins of +50 are also being regularly offered.

Debt Ceiling Optimism Grows

• There is a sense of optimism around the debt ceiling with the agreement passing through the house overnight.
• It is expected that the path through the senate will be less contentious.
• As a result there was a relief rally across markets with both bonds and equities rallying.
• Helping to drive yields lower was more talk from Fed members on a pause at their June meeting, giving them more time to assess the state of the economy
• However after a strong private employment report overnight, there is upside risk to tonights non-farm payrolls which if comes to pass would strengthen the case for another hike at the June meeting.
• In Australia we had another partial indicator of GDP with Private Capex following Construction Work Done the previous day coming in ahead of expectations
• Despite the better than expected partials so far, growth is still expected to have slowed in the second quarter.
• The final GDP release will be next Wednesday, the day after the RBA’s June board meeting.
• There is currently a 1 in 4 chance of a hike by the RBA priced in for next week with a hike now nearly fully priced by the August meeting.