SARB interest rate announcement
- Prior was 4.25%
- 3 votes for 50 bps
- 2 votes for 25 bps
- Expectations for CPI remain around the mid-point of the target
The rand is suddenly looking better. USD/ZAR:
South Africa lowers rates to 3.75%, as expected
Archives of “Bangpan Boys” tag
rssUS Treasury 10-year yields fall below 1.40% as risk aversion ramps up
10-year yields are down by nearly 8 bps on the day now
10-year Treasury yields have already broken the low from last year and now the 2016 low at 1.318% looks set to be on sight. Meanwhile, 30-year yields are hitting fresh record lows at 1.848% to start the European morning as the risk-off mood ramps up.
In the currencies space, USD/JPY is easing slightly to just under 111.50 for now as the likes of the aussie and kiwi stay pressured on the day.
Meanwhile, the greenback is extending gains against the pound and loonie with cable down to 1.2918 while USD/CAD is up to 1.3288 currently.
Italian bonds surge higher on Salvini defeat
Italy 10-year bond yields down by over 15 bps to start the day
- Italy’s Democrats defeat Salvini’s league in key regional vote
Chances of a snap election is less likely now and that is giving more confidence to Italian assets to kick start the week. Just be reminded that Salvini is the number euroskeptic figure in the country and the result above will bolster Conte’s government a bit more.
The more positive take on the move in Italian bonds today is better reflected in the BTP/Bund spread, where we’re see a significant narrowing in the spread today (141 bps now):
The rates market pulls back BOE rate cut pricing for next week
Odds of a 25 bps rate cut on 30 January falls below 50% from ~70% on Friday
The pound is pushing higher now as the rates market is suddenly beginning to be less convinced of a BOE rate cut next week. The pricing was still around ~57% less than a half-hour ago but it has dropped further as UK post-election data shows some optimism.
Essentially, this is also the market saying that they are leaning towards post-election PMI data to tip the scales towards no rate cut on 30 January.
Cable has now risen back above 1.3100 to session highs of 1.3120 and is challenging resistance from last week around 1.3118. If buyers can break above that, there is a good chance for the pound to run further towards 1.3150 next.
Ahead of the BOE next week, any rate pricing less than 70% odds tends to see the central bank not being forced into taking action but no doubt the meeting will still be a live one.
That is something to take into account in case the BOE does “surprise” with a rate cut.