ANZ Morning Brief: All eyes on RB Governor Graeme Wheeler’s first MPS

ALL EYES ON NEW RBNZ GOVERNOR WHEELER’S FIRST MPS. Roll on 9am with the Monetary Policy Statement likely to be one of stability.  While a cut is not impossible, and had it not been for a number of positive factors (including a pick up in activity in Christchurch and a solid bounce in Auckland housing activity) we’d probably be calling for one ourselves, it is simply not the central scenario.  Accordingly, we believe the bond market (which is pricing in a cut by June) will be somewhat disappointed today, to the benefit of the NZD. Still, it’s not just the action matters, so too does the rhetoric and the Reserve Bank’s 90-day interest rate projections.  The latter were trimmed last quarter (delaying the hike profile, rather than signalling a cut) and are likely to be cut again today, further extending the period of projected on-hold policy. At face value, no cut plus an extended period of stability should flatten the yield curve, especially given the small rally in Treasuries, but we shall see at 9am. Don’t forget we also have the Bank of England and the ECB meetings tonight.

·         Obama holding firm. Bloomberg news reports that Obama has hardened his stance on fiscal cliff negotiations. He has said that while he is prepared to make concessions on entitlements for things such as Medicare, he will not back down on higher taxes for the rich, quipping that “we’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it.” Deadlock?  Maybe not.  CNBC ran with a story that a group of around 40 republicans had broken ranks, signing a letter asking for “all options” to be explored, presumably in the hope of achieving a so-called “grand bargain”.

·         RBA’s Deputy Governor, Philip Lowe, gave an interesting speech titled “What is Normal ?”  It gave no direction on near term policy and was more of a “big picture” piece, the upshot of which was that the past 20 years were remarkable, but that things have changed, including the “normal” level for the cash rate.