Sharply Stronger After Core CPI Prints Below Estimates

ACGBs are trading strongly higher (YM +18.0 & XM +13.5), just off their intraday highs, after trimmed mean CPI prints below consensus estimates. Although the headline inflation rate was slightly higher than anticipated, the market is likely to interpret the data as a sign that inflation has peaked, reducing the likelihood of the RBA resuming its tightening cycle at the May meeting. However, persistent domestically driven inflation, which indicates excess demand in the economy, implies that further tightening by the RBA may be required down the line.

• Cash ACGBs are 14-19bp richer on the day and 3-6bp stronger than pre-data levels. The 3/10 cash curve is 5bp steeper with the AU-US 10-year yield differential -4bp at -10bp.
• Swap rates are 13-16bp lower with EFPs 2bp wider.
• Bills are 12-21 richer with the strip flatter.
• RBA dated OIS pricing is 4-9bp softer versus pre-data levels with a daily softening of 17-21bp for meetings beyond July.
• The local calendar sees second-tier releases for the remainder of the week with Export and Import Prices tomorrow and Private Sector Credit and PPI data on Friday.
• The local market is therefore expected to concentrate more closely on the fluctuations in US Tsys as it continues to navigate US corporate earnings.