APAC Morning Update - 11 Nov 2020

No major developments out of the US overnight, and little Australian data means all focus will be on the RBNZ out of New Zealand at 2pm NZDT today. They are widely expected to keep the rates the same, however the market is pricing in a cut to -0.5% in 2021. Remember when the RBNZ foreshadowed this, unemployment was expected to be up around 10%, house prices were expected to drop 5-10%, and there was no vaccine in sight. Now, employment has held up surprisingly well at only 5.3%, house prices are starting to boom again, up 10 or so percent, and we have hopes that a viable vaccine is not too far away. With such a backdrop, the case to go into an relatively unproven strategy negative rates, which carries a lot of risks, seems like a bridge too far. Hence why this meeting is so interesting. If they acknowledge the above, the market will very quickly reprice the odds of such extreme cuts next year, which will drive the Kiwi a lot higher. The RBNZ will of course be wary of this, so will want to tread very carefully, but you can see why this meeting is shaping up as an interesting one.

What makes this meeting even more significant, is that it is the last one for the year. In fact it is the last one until the 24th of Feb. Even if the perception is that the RBNZ has changed stance, repricing an expected OCR of -0.5% to effectively 0.25% is going to lead to a very dramatic move, and hence we think this is one of the more important meetings in a long time. The effect on the AUD/NZD rate, especially since the RBA cut to 0.1%, could be significant.

Global equity markets are mixed - Dow +0.7%, S&P 500 -0.1%, FTSE +1.8%, DAX +0.5%, CAC +7.6%, Nikkei +0.3%, Shanghai -0.4%.

Gold prices are up 0.5%% to USD$1,875 an ounce and WTI Crude Oil prices up 2.4% to US$41.2 per barrel.