TD Securities: RBA Closer To Hitting The Pause Button?

TD Securities note that “NAB published its Monthly Business Survey for December. Business conditions remain above average but fell for the 3rd straight month and while Confidence edged higher, it's still stuck in negative territory.”

• “Labour Costs, Purchase Costs and Final Prices have eased sharply from the July peaks and although elevated in a historical context this could signal that the peak in price pressures may have passed.”
• “Leading indicators also suggest Business Conditions may extend its drop and take the heat out of the labour market. The trend in forward orders suggests firms could cut capacity further (increasing the supply of labour) and drive the underutilisation rate up.”
• “The rapid increase in mortgage rates over 2022 and preliminary signs of a peak in price pressures add further support to the RBA approaching a pause and not taking the target cash rate above 3.60% (China could pose upside risks later in the year).”
• “We are positioned long ACGB 05/28s and short XMH3s. The possibility the RBA pauses before our 3.60% terminal forecast should support this trade. Meanwhile, a pick-up in oil prices should lift long end yields higher and steepen the curve.”