Off Session Cheaps After WPI Provides Modest Miss

YM & XM recovered from session lows in the wake of softer than expected local WPI data, with YM -2.0 & XM -4.0 at typing.

• In terms of details, the Q/Q & Y/Y WPI prints provided 0.1ppt misses vs. their respective BBG consensus calls, hitting +0.7% in Q/Q terms and +2.4% in Y/Y terms. While this may lower the odds of a 40bp move at the RBA’s June meeting, the underlying inflation dynamics, RBA view on Australia’s economic resilience and caution surrounding inflation psychology means that a minimum of a 25p hike should be implemented next month. Add into that mix the lagged nature of the WPI release, in addition to compositional questions given recent renumeration trends and the RBA’s willingness to act on liaison programme communique.
• A quick look at RBA pricing after the dust from the latest WPI data has settled shows that the IB strip is currently pricing ~34bp of tightening come the end of the Bank’s June decision, while the strip prices a year-end cash rate of ~2.78%. These levels represent ~3bp and ~6bp moderations from the respective hawkish extremes of the session.
• The latest opinion polls continue to show the incumbent coalition chipping away at Labor’s lead ahead of Saturday’s Federal election, but will it be a case of too little, too late? Most polls indicate that will be the case, with a marginal Labor majority generally projected.
• A smooth round of ACGB Nov-32 supply saw the average weighted yield price 0.61bp through prevailing mids (per Yieldbroker), with the cover ratio printing comfortably above the 2.00x mark. A fairly bland auction all things told, with the expected smooth digestion observed.
• Thursday will see local focus turn to the latest monthly labour market report.