The battle of wits is on again, albeit at a very early stage. Last round went to the bond market.
The bond market is starting to believe that the RBA has gone too far with its cash rate increases in such a short period of time that it needs to pause. It is even starting to flirt with a small rate cut by the end of the year.
Here is why. The 3 month bank bill swap rate is about 3.75% (dotted horizontal line on the chart) whilst the cash rate is at 3.60%. All other maturities on the yield curve are lower than 3.75% except for 10 years and over signalling that something is about to give. The market can change its view as it sees fit at any time, but if it does, it will let us all know (if you know where to look).
Here’s another reason, which is purely a simple technical analysis observation on the stock market and it’s not financial advice – The fall from 7779 to 7081 in the All Ords Index has formed a price exhaustion signal on 24 March 2023 at 7137, with a target level of 7567. The ASX200 index has yet to follow, but it may achieve the same if it falls and closes below 6955 in the next couple of days. For the stock market to rise it needs the RBA to at least pause, and voila coincidence or not, the next RBA meeting is next week on 4 April 2023.