AUSSIE BONDS: Little Changed, Post-CPI Paring Of Hikes Expectations Holding

ACGBs (YM -4.0 & XM -3.0) have extended the sell-off that started during yesterday’s RBA presser by Governor Bullock. As it stands, futures are 6-10bps weaker, with a flatter curve (see chart).

• Overnight, cash US tsys closed near session lows on Tuesday ahead of today's FOMC decision. The US tsys move was initially driven by US job-openings data, which surprised sharply to the upside.
• Wednesday’s FOMC policy announcement includes a summary of economic projections and a press conference by Chairman Powell.
• Inter-meeting communications reinforced that the FOMC is finely split between those who would ease further and those who are resistant - if not outright opposed - to providing further accommodation.
• Cash ACGBs are 3-4bps cheaper, with the AU-US 10-year yield differential back to its cycle high of +60bps.
• The bills strip has bear-steepened across contracts, with pricing flat to -6.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 36% for February to 101% by May and 196% by November 2026.  
• Today, the local calendar will be empty.
• The AOFM plans to sell A$1000mn of the 1.00% 21 December 2030 bond today.

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Oil prices continued declining on Tuesday as excess supply is back in focus with the release of monthly reports this week. In line with this, weaker demand expectations drove diesel prices down a further 2.7% and a hawkish Fed may weigh on the outlook. US EIA data is out Wednesday and will be monitored for not only rising inventories but also softening product consumption.

• WTI fell 0.8% to $58.39/bbl to be slightly lower in December. It reached $59.17 before declining to $58.12. Moving average studies are in a bear-mode position with the bear trigger at $55.99. Initial resistance is at $61.84.
• Brent is down 0.6% to $62.09/bbl to be -0.5% this month. It rose to $62.78 and then fell to $61.83. The benchmark remains in a downtrend with the bear trigger at $59.93. Initial resistance is at $65.25, 24 October high.
• Bloomberg reported that US oil inventories fell 4.8mn barrels last week, according to those familiar with the API data. Product stocks were higher with gasoline stocks up 7.0mn and distillate 1.0mn.
• The EIA short-term energy outlook expects Brent to average $55/bbl in Q1 2026 and stay around there through the year. It said that OPEC’s policy to stabilise production and China’s ongoing inventory build should limit the downside. Some producers have said that lower prices would discourage investment in the US. The IEA and OPEC reports are out Thursday. 

Bloomberg reported that US oil inventories fell 4.8mn barrels last week while they were unchanged at Cushing, according to those familiar with the API data. Product stocks were higher with gasoline stocks up 7.0mn and distillate 1.0mn. With the focus returning to supply/demand fundamentals, inventory data are likely to be scrutinised. The official EIA figures are released on Wednesday and will also include product demand.