Richer After CPI Monthly Undershoot, Q2 Capex Data Tomorrow

ACGBs (YM +4.0 & XM +2.5) sit richer after the CPI monthly data for July prints better than expected at 4.9% y/y versus 5.2% expected and 5.4% prior. The ABS also released the monthly goods/services and tradeable/non-tradeable components, which is likely useful for the RBA given its focus on services. Goods/tradeables are driving the moderation in headline CPI. However, services inflation eased to 5.6% y/y in July, after a sharp rise to 6.3% in June.

• Construction work done for Q2 and building approvals for July released today also surprised on the downside.
• Cash ACGBs are 3-4bp richer with the AU-US 10-year yield differential 1bp wider at -6bp.
• Swap rates are 2-4bp lower, with the curve steeper.
• The bills strip has bull flattened, with pricing flat to +6.
• (AFR) Inflation cools to 4.9pc, cementing interest rate pause. (See link)
• Qantas debacle helps explain why Future Fund is staying bearish. (See link)
• RBA-dated OIS pricing is 2-4bp softer for ’24 meetings. A 2% chance of a 25bp hike is priced for September.
• Tomorrow the local calendar sees Q2 Capex and the third estimate of 2023-24 Capex plans. Tax incentives, which expired on 30 June 2023, should boost Q2 capex.