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The US Treasuries market has taken the FOMC meeting in its stride.
Once the dust settled after the announcement, the 10-year rate was up slightly, and overnight we have seen rates drift down slightly. It currently sits at 2.25%, down 5 bps for the day.
The market is just relieved that the long-anticipated rate hike is now out of the way.
The implied 100 bps of Fed tightening next year is more or less in line with analyst views, with most seeing the chance of 3-4 rate hikes in 2016.
Market pricing still implies a gentler rate hike path next year. Fed futures show the most likely next move to be in June, with a follow-up move in December, equating to only 2 rate hikes next year. Our colleagues at NAB foresee 3 rate hikes next year. This slightly faster pace than market pricing suggests is expected to impart upside pressure on US Treasury rates next year.
Market participants in the NZ rates market decided that curve had moved up more than enough following the RBNZ MPS. The 2-year swap rate fell by 4.5 bps to 2.815%.
The yield curve steepened, with the 10-year swap rate ending the day unchanged at 3.73%. Today, rates should decline a tad, follow the US move overnight.
Market reaction to robust NZ GDP data was muted. The 0.9% Q3 gain was above market expectations of 0.8%, but a slight downward revision to the previous quarter meant that the y/y increase of 2.3% was bang in line. The robust quarter follows a soft first-half, and leading indicators for the final quarter of the year are encouraging. The less widely reported expenditure-based measure rose by 1.2% q/q and 3.5% yoy.
After a busy 24 hours, the event calendar is light for the next 24 hours. In NZ we’ll be watching the ANZ business outlook survey. There is a good chance that activity indicators will consolidate, even build upon, their recent broad revival, after packing a bit of a sad over winter. That said, the survey’s industry variation will be important to note, along with its inflation gauges.
The BoJ’s policy meeting is expected to be a non-event, with no change to its policy stance likely.