Early Weakness Unwound

Futures pared their overnight/early Sydney losses losses, with YM finishing -1.0 & XM settling flat, while cash ACGBs were little changed to 1bp richer. Offshore cures shaped the general direction of travel throughout the day.

• 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 ABS noted that the CPI data is “indicating ongoing inflationary pressures.” Meanwhile, the retail sales print saw the data collator note that “the rise in turnover was driven by Black Friday sales, which boosted spending on clothing, footwear, furniture, and electronic goods.”
• The net message from this is that inflation/cost-of-living pressures remain acute in Australia, a matter the RBA is well aware of.
• Still RBA dated OIS did not move meaningfully on the back of the data, with terminal rate pricing continuing to hover a little below 3.90% come the close, a touch softer on the day, while the strip still prices 20bp of tightening for next month’s gathering.
• Bills finished flat to +4.
• EFPs were narrower on the day, suggesting support from swap flows.
• Offshore & supra issuers bought A$ paper in the 3- to 10-Year zone to market.
• Looking ahead, monthly trade balance data headlines the domestic docket on Thursday.