HALISTER1: AUSSIE BREAKEVEN RATES ROUNDUP: Oil Complicating the Outlook

AUSSIE BREAKEVEN RATES ROUNDUP: Oil Complicating the Outlook

(Bloomberg) -- The decline in Australian breakeven interest rates is mostly in line with those of its major trading partners, with some notable differences, according to three Sydney-based market participants.
  • Tano Pelosi, portfolio manager, Nabinvest Capital Partners
    • The collapse in long run inflation expectations is ominous for central banks and the global economy given the implications
    • If there is an unmooring of inflationary expectations it would indicate a loss of central bank credibility; with a herculean task to correct it
    • Inflation linked bonds are being hit harder than many nominal bonds as global liquidity dries up; could complicate any change of market direction
  • Martin Whetton, director AUD rates strategy, ANZ
    • RBA has been quite successful in keeping inflation within its target range during economic cycles
    • A key difference with the US is the oil component, which has a bigger influence in the US expectations, than Australia’s
    • Australia’s more regulated utilities also help moderate fall in break even rates
  • Ben Jarman, senior economist, JP Morgan
    • The degree of correlation with oil has been surprising. The oil price today has little bearing on how inflation dynamics will play out over a 10-year horizon
    • US is experiencing a double-whammy of weaker oil and a strengthening currency, while Australia has a falling AUD to offset global deflationary forces
    • Clear signs of an oil supply accord and stabilization in prices will go a long way to putting a bottom under market based inflation measures globally
    • RBA is fairly consistent in saying that domestic inflation expectations are well anchored
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Tano Pelosi (nabInvest Capital Partners Pty Ltd)
Ben Jarman (JPMorgan Chase & Co)
Martin Whetton (Australia & New Zealand Banking Group Ltd)

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