AUSTRALIA DATA: Too Early To Tell If Downtrend In Core Inflation Has Resumed
While November headline inflation picked up 0.2pp to 2.3% y/y, the focus is on trimmed mean given current state & federal electricity rebates and this underlying measure eased 0.3pp to 3.2%, where it was in September. However, the RBA continues to focus on quarterly CPI data and it wants to be confident that inflation will return sustainably to the band. It is too early to tell if monthly inflation is trending lower again, thus attention will be firmly on Q4 CPI on January 29.
Australia monthly CPI y/y%
- Domestically-driven services prices were updated in November and they moderated to 4.2% y/y, the lowest since April, down from 4.8%. The series is a bit volatile and November was in line with the 2024 average but 3-month momentum has been trending lower since June. Non-tradeables rose to 3.2% y/y from 3.0% but below September’s 3.5%.
- Goods inflation remained subdued at 0.8% y/y but up from 0.1% in October with tradeables up 0.1pp to 0.6% y/y. RBA Governor Bullock warned previously that the disinflationary impact from goods prices is probably done.
- The timing of electricity rebate payments contributed to the pickup in headline inflation. The ABS said that prices fell 21.5% y/y in November after -35.6% y/y. Excluding all subsidies, electricity would have been down 1.7% y/y.
- Petrol prices put less downward pressure on headline inflation in November falling 10.2% y/y after -11.5%, and they posted their first monthly rise since June.
- Rents increased 6.6% y/y after 6.7%, as the market remains tight. New dwelling inflation eased to 2.8% y/y from 4.2%, the lowest since July 2021. The ABS notes that builders are offering deals to attract customers.
- Food & non-alcoholic beverages rose 2.9% y/y down from 8.5% in October.
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JGBS: Richer Despite Q3 GDP’s Upward Revision
In Tokyo morning trade, JGB futures are stronger and at session highs, +21 compared to settlement levels, despite Q3 GDP's upward revision.
- Japan's economy for Q3 grew at a faster pace as net exports and private inventories were revised up from its first preliminary estimates, although private consumption was revised down.
- Public investment fell 1.1% q/q, revised down from -0.9%, and the GDP contribution of public investment was revised to -0.1 pp from -0.0 pp. Private consumption, which accounts for about 60% of Japan’s GDP, was revised to 0.7% from 0.9%, and its contribution was revised to 0.4 pp from 0.5 pp.
- Cash US tsys are ~1bp richer in today’s Asia-Pac session after Friday’s modest post-payrolls gains. Reminder, the Federal Reserve entered their self-imposed blackout at midnight Friday through December 19, the day after the final FOMC policy announcement for 2024. The focus is next week's CPI and PPI inflation data on Wednesday and Thursday respectively.
- Cash JGBs are 1-2bps richer across benchmarks. The benchmark 10-year yield is 2bps lower at 1.04% versus the cycle high of 1.108%.
- Swap rates are 1-2bps lower out to the 10-year and 2bps higher in the 20-30-year zone. Swap spreads are mixed.
AUSTRALIA: RBA Likely On Hold, Watch November Jobs Data
The focus of this week will be Tuesday’s RBA decision and Thursday’s November jobs data after October disappointed. Rates are unanimously forecast to remain at 4.35% and so the guidance will be monitored closely for any changes. The unemployment rate is expected to tick up.
- Tuesday sees the November NAB business survey released. After the weak Q3 GDP outcome, any further deterioration in business conditions will be concerning. The labour and price/cost components are also important.
- Bloomberg consensus is again forecasting a 25k increase in employment in November with the unemployment rate rising 0.1pp to 4.2%. The RBA is projecting it to rise to 4.3% in Q4 2024. The participation rate is expected to remain elevated at 67.1%.
- Tuesday’s RBA meeting will be followed by Governor Bullock’s press conference. Also Deputy Governor Hauser speaks on Wednesday at the ABE annual dinner. On Thursday, Assistant Governor (Financial System) Jones speaks and Assistant Governor (Economic) Hunter on Friday.
AUSSIE BONDS: Nov-29 Supply Goes Smoothly With Stronger Demand
The latest round of ACGB Nov-29 supply comes as expected pricing comfortably through mids (weighted average yield was 1.21bps through prevailing mids, per Yieldbroker).
- Additionally, the cover ratio rose to 3.7850x from 3.100x.
- As noted in the MNI Auction Preview, today's auction smooth absorption occurred despite an outright yield that was around 35bps lower than the previous auction level.
- On the positive side, it was important to acknowledge that the sentiment towards global bonds had improved over the past month.
- The Nov-29 line is little changed in post-auction trading.
