Daily Flows

• Yesterday, market participants eagerly sought opportunities from a Green-Friendly BBB+ bank.
• There was a substantial influx into 6-month term deposits at 5.40% and 12-month deposits at 5.50%.
• NCD margins traded at +50 for 3 months. This may drop to +48 today as mid-month inflows alleviate liquidity tightness.

Weaker Than Expected US CPI Has Markets Popping Champagne

• The US CPI October report for 2023 came in slightly weaker than expected. For the month, the headline CPI remained unchanged at 0.0%, while core CPI rose by 0.2% (expected 0.3%).
• Energy costs fell 2.5% MoM, core goods prices (excluding energy and goods) by 0.1% MoM, and used cars/trucks were down 0.8% MoM.
• The softer inflation data implies that the US central bank may not raise interest rates further, and the market anticipates potential rate cuts in the first half of next year.
• The US 10-year Treasury yield experienced its most significant one-day decline since March, decreasing by 19 basis points to 4.44%.
• This recalibration of the yield curve may signal a turning point for interest rate markets and lead to the repricing of domestic longer-duration offerings.
• Offerings like a 5-year term deposit at 5.70% may be challenging to justify as the narrative shifts from a focus on hikes to potential future cuts.
• Those seeking to maximise portfolio returns may want to consider a barbell approach to investments which allows them to take advantage of remaining steepness in the curve and access to short term liquidity.

November Rate Hike Sinks Consumer Confidence

• Business conditions improved to +13 yesterday, while confidence declined by 2 points to -2.
• Despite slight relief in labor and purchase cost growth, as well as output price inflation, price pressures persisted.
• Retail price growth remained unchanged, indicating ongoing strength in inflation.
• The index fell 2.6% to 79.9 in November 2023 from 82 in October, resulting in deeply pessimistic levels due to the RBA’s November rate hike.
• Seventy-three percent of respondents expect mortgage interest rates to increase in the next 12 months, marking a notable increase from 63% in the previous month and 48% in September