AUSSIE BONDS: Off Lows As RBA Sees Underlying Inflation Back To Top Of Target In ‘24
Aussie bonds pull away from session cheaps, assumingly on the back of the RBA’s SoMP pointing to underlying inflation returning to the upper end of the target band by the end of next year (albeit with a mark higher in this year’s forecast points). There wasn’t anything in the way of meaningful moves in the growth/unemployment tracks, leaving inflation front and centre given the very tight domestic labour market situation (a bit of a given before the release). YM now -10.0., while XM is -7.0, as the contracts move away from their post-SoMP extremes, with the mark higher in this year’s underlying inflation expectations tempering the initial post-release bid. Wider cash ACGBs run 6.5-10.0bp cheaper as the curve flattening dynamic holds. RBA-dated OIS now shows a terminal rate of just under 4.15% after pushing closer to 4.20% earlier in the session. EFPs are little changed on the day.
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JGBS: Futures Off Lows, 20- To 30-Year Zone Struggles Ahead Of Supply
JGB futures have chipped away at overnight losses in early Tokyo trade, given the move away from Tuesday’s lows in U.S. Tsys (which JGB futures did not participate in during overnight dealing), leaving the contract -8 at typing. The major cash JGB benchmarks sit 1bp richer to 1bp cheaper across the curve, with nothing in the way of uniform flattening/steepening moves observed, as the 20- to 30-Year zone struggles ahead of today’s 30-Year JGB auction. Local headline flow remains light, leaving wider matters and setup for supply at the fore.
AUSSIE BONDS: Knee-Jerk Move Lower On Data Reversed
Slightly firmer than expected monthly CPI data (+7.3 Y/Y headline and +5.6% trimmed mean vs. BBG survey expectations of +7.2% & +5.5%, respectively), coupled with a firmer than expected retail sales print (+1.4% M/M vs. BBG median +0.6%, alongside a revision to the prior month with the surprise -0.2% print adjusted to +0.4%), applied some brief pressure to the ACGB space, which pared back from extremes relatively quickly.
- The move away from post-data cheaps may have been a product of one data vendor posting an erroneous headline CPI print of +7.4% Y/Y. Wider cash ACGBs run ~4bp cheaper across the curve, while YM & XM are -4.0, a touch above early Sydney levels, aided by U.S. Tsys trading marginally firmer on the day.
- The ABS noted that the CPI data is indicating ongoing inflationary pressures, while “the most significant contributors to the annual rise in November were Housing (+9.6%), Food and non-alcoholic beverages (+9.4%), Transport (+9.0%), Furniture, household equipment and services (+8.4%) and Recreation and culture (+5.8%).”
- When it came to the retails sales data the ABS noted that “the rise in turnover was driven by Black Friday sales, which boosted spending on clothing, footwear, furniture, and electronic goods… Given the increasing popularity of Black Friday sales, the smaller increase in October may reflect consumers waiting to take advantage of discounting in November, particularly in light of cost-of-living pressures.”
- The net message from this is that inflation/cost-of-living pressures remain acute in Australia, a matter the RBA is well aware of.
AUD: Firmer Data Boosts AUD
AUD/USD hit a high of 0.6914 post the better than expected retail sales and CPI data for Nov. We have stabilised somewhat now, last just below 0.6910, but the A$ is outperforming against the rest of the G10. Yesterday's high in AUD/USD was close to 0.6930, while on Monday we topped out at 0.6950.
- Headline inflation printed at 7.3% y/y, versus 7.2% forecast. The trimmed mean was 5.6%, 5.5% was expected. Both inflation measures showed sequential gains from October in y/y terms and still fairly broad based price pressures. Retail sales posted a solid +1.4% m/m gain, +0.6% was the forecast, while October was also revised up meaningfully, to +0.4% from -0.2% originally reported.
- At the margin, the data should raise the odds of further RBA action in February.
- The AU-US 2yr government bond yield spread has firmed a touch post the data, last around -92bps, although this is little changed from levels that prevailed this time yesterday.
