Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – U.S. Rates to Rise, Considerably

Wednesday, 18th May, 2022

Daily Flows

  • We saw a busy day in activity yesterday with several ADI’s seeking funds, but more limited investor money available; a reversal of the trends we have seen through the pandemic era.
  • An unrated domestic ADI was offering 1.55% on a 3-month term deposit, which was quickly snapped up by the market.
  • ING increased their 1-year rate back up to 3.08%, the highest available in the market across any credit rating.
  • Several ADI’s were also looking for NCD funding, with +20 the going rate for domestic 3-month terms.
  • We saw more flows into last week’s Westpac bond issuance, with interest in the 3-year 3.80% fixed coupon tranche. The 3 (+73) and 5 year (+105) floating lines have also proven quite popular.
  • ING launched a new bond issuance, spread across 3-year fixed (4.00%) and floating (+78) lines, as well as a 7-year fixed (4.50%) tranche.

Powell Suggests Many More Hikes to Come

  • Jerome Powell delivered his most hawkish speech yet, stating that the Fed will continue to hike until there is “clear and convincing” evidence that inflation is subsiding.
  • Powell also stated that if necessary, rates will continue to rise even past “broadly understood levels of neutral” and “We will go until we feel we are at a place where we can say ’yes, financial conditions are at an appropriate place, we see inflation coming down.”
  • Further, Powell stated that 50 basis points are more than on the table for June and July meetings.
  • A raft of very positive data came out of the U.S. overnight. Retail sales were up 0.9% MoM.
  • The reason this data is so strong, is that when annualising the print, real retail sales are up.
  • April industrial production smashed expectations, with the headline up 1.10% MoM. Manufacturing was also up 0.80% MoM and auto production increased by 3.90% MoM.
  • Whilst this displays the strength within the economy, Fed Chair Powell would be unhappy to see further demand pressure being placed on the economy.

Australian Data Today

  • Q1 Wage Price Index is released today at 11:30.
  • The print will be highly watched, as it may force the RBA into a larger hike in the June meeting.
  • The market is currently expecting a 0.80% QoQ.
  • Yesterday, consumer confidence fell to 89.3 from 90.5. Again, highlighting consumer worry about rising interest rates, and increased inflation pressures.

Lawrence Vosper, Nicholas Allan

Curve Team