Q1 GDP Misses But Productivity & ULCs Will Be A Concern For The RBA

ACGBs are sitting cheaper (YM -6.0 & XM -1.5) as local participants consider RBA Governor Lowe's speech, a Q1 GDP miss and troubling productivity and unit labour costs (ULC) updates.

• Cash ACGBs are 2-5bp cheaper with the AU-US 10-year yield differential 4bp higher at +16bp.
• Swap rates are 1-5bp higher on the day.
• The bills strip is lower with pricing -2 to -10, late whites leading.
• RBA dated OIS pricing is 1-5bp firmer across meetings after the data with December leading.
• While Q1 GDP undershot expectations, it also revealed a 4.5% y/y fall in productivity, the lowest annual rate since the series began in 1979. Moreover, ULCs rose from 6.9% y/y in Q4 to 7.9%, the highest annual rate since 1990 outside the pandemic. This data is only going to increase inflation risks and the RBA’s concerns.
• Goldman Sachs has raised its terminal rate hike expectation for the RBA (to 4.85% from 4.35%) after RBA Lowe's speech earlier today. The bank now expects hikes in July, August and September. Previously it had expected a 25bp hike in July.
• The global economic calendar is light today, with the highlight being the BoC Policy Decision. The market has assigned a 46% probability of a 25bp rate hike.