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