Richer, US Tsys Richen Ahead Of 4th of July Holiday

ACGBs (YM +2.0 & XM +3.0) are stronger after US tsys richened on the back of weaker than expected US economic data.

• Activity in the US services sector slumped to a 4-year low. The services ISM fell 5 points to 48.8, which was far weaker than consensus estimates.
• There were also further signs of cooling in the labour market: ADP employment was modestly lower than expected in June at 150k (cons 165k) after a slightly upward revised 157k (initial 152k) in May; Initial jobless claims were slightly higher than expected at 238k (sa, cons 235k) in the week to Jun 29.
• Little reaction to the FOMC June minutes release given that there was nothing that hasn't been relayed by Fed speakers over the last couple of weeks. “Participants affirmed that additional favourable data were required to give them greater confidence that inflation was moving sustainably back to 2%,” the minutes said.
• Focus now turns to the employment report on Friday.
• Cash ACGBs are 2-3bps richer, with the AU-US 10-year yield differential at +4bps.
• The bills strip has bull-flattened, with pricing flat to +3.
• RBA-dated OIS pricing is slightly softer across meetings but remains 6-25bps firmer than pre-CPI levels. Terminal rate expectations sit at 4.48%.
• Today, the local calendar will see Trade Balance data.