- With only a 16% chance of a rate hike priced in by the markets for the November meeting, market participants continue to extend their positions, taking advantage of any steepness in the yield curve.
- Reference rates are relatively flat over the 1-3 year period (10 basis point variance), investors have been locking in 4-5 year term deposits at a rate of 5.30% where their cash flow permits.
- Volatility remains low in the NCD space, with a level of +40 for 3 months needed to attract funds
Moderating Business Conditions Good News For the RBA
- Business conditions eased in September and business confidence remains low.
- Most notably, there was a significant decrease in cost and price pressures in September, indicating a deceleration of inflation.
- Purchase costs increased by 1.8% QoQ, marking the slowest pace since mid-2021.
- Labor costs, which surged in July due to minimum wage changes, cooled in September, with a 2.0% QoQ increase.
- Consumer sentiment remains deeply pessimistic, but it did rise by 2.9%, reaching its highest level in 6 months.
- High inflation and renewed concerns about rising interest rates continue to be the main concerns for consumers.
- The softening of business conditions will be a welcome sign for the RBA.
- If the softened business conditions begin to affect price data, the RBA may not need to further tighten monetary policy.