AUSSIE BONDS: Gaps Richer After Trimmed Mean CPI Miss

ACGBs (YM -3.0 & XM -4.5) are holding weaker after a subdued Sydney morning session.

• Private credit rose 0.5% m/m (estimate +0.6%) in May versus +0.7% in April.
• Melbourne Institute inflation index rose 0.1% m/m in June versus -0.4% in May. Inflation index rose 2.4% y/y versus +2.6% in May.
• (Dow Jones) Recent turmoil in global financial markets is fueling overseas demand for New South Wales state government bonds, despite concern about a rise in public-sector debt levels in Australia.
• Cash US tsys are slightly mixed, with a steepening, in today's Asia-Pac session after Friday's modest losses.
• Cash ACGBs are 3-5bps cheaper with the AU-US 10-year yield differential at -10bps.
• The bills strip is -1 to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in July is given a 94% probability, with a cumulative 81bps of easing priced by year-end (based on an effective cash rate of 3.84%).
• This week, the AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Wednesday and A$1000mn of the 2.25% 21 May 2028 bond on Friday.

• The Official PMIs followed the familiar theme of recent releases with the PMI manufacturing in mild contraction and the PMI non-manufacturing barely holding in expansion.  
• The PMI Manufacturing print of +49.7 was the third successive print below 50.  Output and New orders rose relative to last month whilst employment declined.
• The PMI Non-manufacturing print of 50.5 was a modest improvement on last month's release of 50.3 whist New orders up whilst employment was down.
• This is the first full month of data since the agreement between Beijing and Washington to a halt to the trade war.  

The New Zealand ANZ business activity and confidence measures rose in June. On activity we moved back to 40.9, from 34.8 in May, while confidence rebounded to 46.3, from 36.6 prior. The improvement in June follows move lower in these headline indices since the end of Q1. We remain off cyclical highs for both measures, activity reached 50.3 in Dec last year, while confidence was at 65.7 in October last year. The Q2 averages for both activity and confidence were below the Q1 outcomes. 

• In terms of the detail, the sub-indices ticked higher, with exports up to 13.9, while investment rose to 19.9 (from 11.6 in May). Costs and wages also rose. The cost sub index to 79, while wages were at 76.1, still sub recent highs for this index.
• The construction outlook improved, but again these indices are still sub recent highs. Employment printed at 10.8, which compares with an earlier high of 18.1 (April this year).
• Pricing intentions rose to 46.3 from 45.4. Inflation expectations were unchanged at 2.71%.
• ANZ noted: “In terms of what firms are actually experiencing, there’s been a bit of a slump recently in both activity and employment. While economic growth in 1q was decent at 0.8% q/q, the omens for 2q are not looking nearly so positive” (via BBG).
• This is consistent with the softer average readings in the headline indices for Q2.