Daily Market Update

• Last Friday, investors were able to pick up the Newcastle Greater 5-year FRN at a discount margin of +164. The issue has seen significant trading activity recently, with its price still undergoing adjustments.
• Globally, central banks are cautious about market price setting behaviour and are consistently advocating for a ‘higher for longer’ stance, resulting in a gradual uptick in yields.
• This sentiment could drive up longer-term deposit rates, offering market participants an opportunity to secure deposits yielding over 5% for 2 to 5 years.

RBNZ: A Compelling Case Study in the Battle Against Inflation:

• ANZ’s forecast predicts the RBNZ will raise rates in both February and April, potentially elevating New Zealand’s cash rate to 6%.
• The RBNZ acted swiftly to increase interest rates and paused hiking in November. However, unforeseen developments in unemployment, non-tradable inflation, and consumption have aligned with ANZ’s projections, with the market now pricing in a hike for May 2024.
• This scenario could serve as a warning for other central banks facing similar challenges.
• On the demand side, service inflation may persist, posing challenges, while supply-side factors such as rising oil prices and geopolitical tensions introduce further uncertainties.
• Meanwhile, the RBA in Australia remains open to options, refraining from ruling out a rate hike and emphasising a data-dependent approach.