Richer, Mid-Range After CPI Monthly Upside Surprise

ACGBs continue to display strength on the day, with YM +3.0 and XM +5.5. However, they are currently positioned mid-range for the Sydney session. Futures opened at their highest levels of the session but experienced a downward spike in response to the release of stronger-than-expected monthly CPI data (6.8% y/y versus 6.4%). The market quickly realised that a significant portion of the inflationary surprise was driven by automotive fuel prices. As a result, futures swiftly reversed their initial movement and have since traded within a narrow range.

• Cash ACGBs are 4-5bp richer with the curve flatter.
• The AU-US 10-year yield differential is 2bp wider after the data at -5bp.
• Swap rates are 2-3bp lower with EFPs wider.
• The bills strip twist flattens with pricing -7 to +6.
• RBA dated OIS is 4-8bp firmer across meetings with a 40% chance of a 25bp hike in June priced.
• Bloomberg reports that Goldman now expects the RBA to hike +25bp in June and July to a terminal rate of 4.35%.
• The local calendar has Judo Bank PMIs (May F) and Private Capex Expenditure (Q1) scheduled for release tomorrow. Expectations point towards increases in capital expenditure for both equipment and building & structures. Additionally, the second estimate for planned capital expenditure in 2023-24 will be disclosed.