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RBC: Reinstating YM Short

AUSSIE BONDS

RBC note they “stopped out of a short position in June 3-Year futures Monday night at 97.05, but as this does not represent capitulation on our view and our underlying tactical bias is still to fade the SVB-driven rally. Given U.S. core CPI came in higher than expected, a (we think) above-consensus domestic labour force print tomorrow (RBC +80K vs cons. +50K), and a likely 50bp hike from the ECB on Thursday night, we recommend re-instigating small tactical shorts in 3-Year futures at current levels (96.88 entry). We set our stop wider than previously, at 97.15 (reflecting a small position in a high-vol. environment), targeting a sell-off to 96.50. Preferably we’d be scaling in between current levels and the figure (97.00) but for the avoidance of doubt we use current levels for the trade.”

  • “The main risk remains further as-yet unknown financial system issues, particularly if markets decide to zero in on European financials, but we still think the SVB situation is essentially idiosyncratic and able to be dealt with using tools other than rate cuts. From our perspective, inflation remains the “main game” for central banks and for that, further policy rate hikes across the globe including in the near-term (and including from the RBA) are still the more likely scenario.”
  • “Probabilistically, market pricing for the RBA likely represents a small tail risk chance of multiple cuts if further financial contagion risks emerge, offsetting a more likely base case of one or two more hikes over the next ~3 months. We think the tail risk is over-priced here.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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