Slightly Richer, Limited Impact From Wages Data

ACGBs (YM +2.0 & XM +1.0) are sitting slightly stronger. The market’s focal point today was the release of the Wages Price Index (WPI) for Q4. The WPI was largely in line with expectations, printing a rise of 0.9% q/q (estimate +0.9%) in Q4 versus +1.3% in Q3. Wage price index rose 4.2% y/y in Q4 (estimate +4.1%) versus revised +4.1% in Q3. The annual rate was the fastest in almost 15 years and positive in real terms.

• The RBA is currently not concerned about wages but that depends on a productivity improvement. It stated that productivity not recovering “as assumed” was a “material risk”. Without that growth, current wage rates are too high to achieve the inflation target.
• Michelle Marquardt, ABS head of prices statistics, said: “For both the public and private sector, wage growth was driven by organisation-wide annual wage and salary reviews.”
• Cash ACGBs are 1-2bp richer on the day, with the AU-US 10-year yield differential +1bp at -10bps.
• Swap rates are 1-2bps lower on the day, with the 3s10s curve steeper.
• The bills strip is richer, with pricing flat to +3.
• RBA-dated OIS pricing is little changed on the day. A cumulative 40bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Judo Bank PMIs (Preliminary) for February.