WPI & RBNZ Eyed After Bearish Flattening Overnight

Aussie bond futures flattened in a bearish fashion during overnight dealing, aided by the momentum observed in wider core global FI trade, although the late bid in the longer end of the U.S. Tsy curve may provide some support for XM futures during the early rounds of Sydney trade. YM is -4.5 while XM is -3.5, in line with late overnight levels after a correction from post-Sydney cheaps. Bills run 2-7bp cheaper through the reds.

• Q2 wage price data headlines the domestic economic docket today. When it comes to the wider wage dynamics, the minutes of the RBA’s August monetary policy decision revealed that “members noted that firms continued to expect wages growth to be higher in the period ahead. In liaison, over 60% of private sector firms indicated that they expected to raise wages by more than 3% over the year ahead. Recent high inflation outcomes were a factor in current wage negotiations, but to date most firms expected to raise wages by less than inflation.” The Bank also remains cognisant of the risks that wage growth poses re: inflation, highlighting the idea that “the effect of high inflation on wage- and price-setting behaviour presented a material risk to the inflation outlook. Members noted that, if inflation expectations and the general inflation psychology shifted, higher inflation would be more persistent.” A reminder that the Bank’s SoMP flagged a projection of +2.6% Y/Y for today’s Q2 WPI print, expecting further acceleration to +3.0% in Q4, steadily rising to +3.9% come the end of ’24. The BBG median for today’s print is virtually in line with the Bank’s projection, looking for +2.7% Y/Y.
• Elsewhere, today will see the release of the latest Westpac leading index reading and A$800mn of ACGB May-32 supply.
• Participants will also be cognisant of the trans-Tasman risks posed by the latest RBNZ monetary policy decision. Note that a 50bp rate hike is seen as a foregone conclusion, so focus should quickly shift to the language deployed by the Bank, in addition to its updated OCR track projections.