BTP TECHS: (U5) Trend Structure Remains Bullish

Q1 GDP printed slightly higher than Westpac expected due to stronger household consumption than assumed. It warns that there could now be a period of “subpar economic growth” if there is a “shaky” transition from public to private growth, which is not being helped by heightened global trade uncertainty. At the same time, productivity and unit labour cost data in today’s release point to some upside inflation risks. Thus the RBA is “stuck between supporting growth and managing inflation risks”. 

• “The Australian economy slowed significantly in the March quarter, lifting 0.2%qtr and 1.3%yr  (on a par with the weakest reads since the early 1990s recession, excluding the COVID period). Notably, GDP per person resumed to fall, down 0.2%qtr and 0.4%yr after stabilising in Q4 last year.”
• “In line with our updated expectations, public demand fell and the private sector struggled to pick up the slack. While one-off factors, mainly related to bad weather events in Qld and NSW, played a role, underlying momentum is undoubtedly weak.”
• “Without a material pick-up in private demand the economy could be set for a period of subdued growth.”
• “Today’s Accounts also show that aggregate productivity continues to be weak down 1.0%yr, and growth in the economy’s cost base (or nominal unit labour costs) remains elevated at 6.1%yr.”
• “After experiencing the largest decline in purchasing power on record, the consumer remains cautious and more interested in rebuilding balance sheets than boosting spending.”
• “Public spending remains elevated, but as we predicted in our preview, growth has declined as we pass the peak in construction activity related to large infrastructure projects. There was also a pull back in state and local government consumption as temporary cost of living support has been wound back.”

Danske Bank now expect the Riksbank to cut rates by 25bp in August to a revised terminal of 2.00%, owing to “lower monthly inflation readings (seasonally adjusted) in combination with a weaker domestic economy”.

• “Despite an improved inflation outlook there are still risks. The uncertain geopolitical situation increases the risk of supply chain disruptions. Despite a stronger SEK and weaker demand, pricing plans are still elevated, prompting concern about firms’ pricing behaviour”….“The continued risks warrant a cautious Riksbank, in our view, primarily as it may need further evidence that the inflation pressure is really easing
• “While a June cut cannot be ruled out, we expect a dovish hold to be a more attractive option. Remaining data until the June meeting, such as the May inflation (full release 13 June) , the April activity data (10 June) and the Riksbank’s Business Survey (10 June) could potentially tip the balance for a June cut, but this is not our base case”
• “Further cuts cannot be ruled out but would require a lower path for inflation than we currently anticipate, and we do not expect the Riksbank to lower its inflation forecast enough to support signals of further cuts beyond August either”

• RES 4: 92.53 High May 8 (cont) 
• RES 3: 92.40 Low May 8      
• RES 2: 92.00 Round number resistance
• RES 1: 91.87/92.11 High May 20 / High Jun 3 
• PRICE: 91.92 @ Close Jun 3
• SUP 1: 91.16/90.59 Low Jun 2 / Low May 29
• SUP 2: 90.11 Low May 22 and the bear trigger 
• SUP 3: 90.00 Round number support    
• SUP 4: 89.68 Low Jan 15 (cont)        

Gilt futures have recovered from their recent lows and strengthened this week, however, gains are still considered corrective and this has allowed a short-term oversold condition to unwind. The bear trigger has been defined at 90.11, the May 22 low. Key short-term resistance to watch is 91.87, the May 20 high. It has been pierced, a clear break of this level is required to highlight a stronger reversal.