Richer Post-CPI As 75bp Hike Swept Off The Table

Aussie bonds are comfortably higher after Australia’s Q2 CPI print, catching a bid as the slight miss in headline inflation has spurred a downward revision of RBA rate hike bets for the Aug meeting. Cash ACGBs are a little off best levels, running 6.0-11.5bp richer across the curve, bull steepening, with 3s sitting 10.0bp richer after printing as much as 14bp cheaper earlier. YM is +11.0, operating comfortably through its overnight highs, while XM is +7.0, sitting just shy of its own overnight peak. Bills run 10 to 19 ticks richer through the reds, bull steepening.

• Australian Q2 headline CPI missed expectations slightly (+6.1% Y/Y vs. BBG median +6.3%), although trimmed mean CPI (the RBA’s preferred measure of underlying inflation for this slate of data) came in slightly above expectations (+4.9% Y/Y vs. BBG median +4.7%), with the ABS noting that the figure was at the “highest since the series commenced in 2003”.
• The data has seen Goldman Sachs and Deutsche reduce their calls for 75bp rate hikes in Aug to 50bp, with NAB, CBA, and ANZ re-affirming their previous calls for 50bp of tightening next month.
• STIR markets have unwound any pricing of a 75bp RBA hike in Aug, and currently price just under 50bp of tightening at that meeting (vs. ~56bp prior to the CPI print). A cumulative ~191bp is now priced in for the remaining five meetings of the year, pointing to an average of ~38bp of tightening at each meeting (on a simple average basis), with a cumulative ~20bp of tightening premium through the remainder of ’22 unwound post-CPI.
• Thursday will see the release of Jun retail sales and Q2 terms of trade, while Treasury Secretary Dr Chalmers is expected to deliver his economic update for July in parliament at some point in the day, having noted earlier on Wednesday that he would be addressing “confronting” news re: a lower national growth outlook and the impact of inflation on real wage growth.