Off Best Levels, Following Wider Flows

Wider risk appetite has been in the driving seat on Tuesday, with local headline flow lacking, while domestic data failed to provide any notable impetus for the space. The previously flagged recovery in risk appetite during Asia-Pac hours has allowed the space to pull back from best levels observed earlier in the session, with YM +7.0 & XM +2.0. This came after Monday’s U.S. Tsy bull steepening impulse drove price action in the overnight session. Longer dated cash ACGBs are ~1bp richer on the day.

• Retail sales ex-inflation for Q1 was marginally firmer than expected (+1.2 Q/Q vs. BBG median of +1.0%), although that was accompanied by a 0.3ppt reduction in the Q4 Q/Q reading, via revisions.
• Meanwhile, the monthly NAB business survey revealed an uptick in conditions but a downtick in confidence. The survey collator noted that “business conditions continued to strengthen in April, while confidence eased but remained above its long-run average. Trading conditions and profitability continued to strengthen, while employment was steady… Both confidence and conditions now look fairly strong across most industries, with the exception of transport & utilities and construction where cost pressures have been most acute. Capacity utilisation also continued to rise… Cost pressures continued to build, with labour cost growth up to 3.0% and purchase cost growth reaching 4.6% (in quarterly terms) - both at new highs. However, output price inflation eased with final product prices rising 1.7% and retail prices up 2.1%. Still, these rates of price growth remain high in the history of the survey and the strength in underlying costs suggests inflationary pressure is likely to continue building over coming months. Overall, the survey highlights the ongoing strength in activity and the broad-based nature of the recovery, against a backdrop of cost pressures continuing to pose a significant challenge for businesses.”
• Lower tier data also failed to impact the space.
• A quick look at tomorrow’s domestic docket suggests that the monthly Westpac consumer confidence data and A$400mn of ACGB Jun-51 supply will provide the focal points.