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30 Jan 2024

Inflation moving in the right direction

The Q4 Australian CPI report negatively surprised. A welcomed development for indebted mortgage holders with the data further cementing the case for the RBA to keep rates steady for a while, and opening the door slightly more to the start of a gradual easing cycle later this year. Positive base-effects in things like food and petrol as last year’s larger increases rolled out of calculations, coupled with disinflation across ‘goods’ prices (thanks to weaker global demand and repaired supply chains), and government subsidies designed to artificially hold back rents and take the heat out of electricity costs pushed annual CPI...

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US Fed & Australian CPI in focus

• Consolidation. Better than expected US labour & Eurozone GDP data pushed up front-end bond yields. But FX moves were limited. AUD near $0.66.• AU inflation. Q4 CPI forecast to slow a little more than the RBA was thinking. But details matter. Attention will be on how services prices are evolving.• US Fed. Focus will be on the Fed’s guidance. Risks the Fed pushes back on near-term rate cut pricing appear high. This may give the USD a boost. Consolidation across markets overnight with sentiment waxing and waning as the data rolled in and with participants focused on tomorrow mornings...

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Treasury Funding Rally Fades as Event Risks Loom

Sentiment is stabilizing in financial markets after a late-Monday surge that saw equity indices jump, Treasury yields fall, and risk-sensitive currencies outperform the dollar. The rally was touched off when the US Treasury said it would need to borrow less than previously anticipated, essentially soaking up less market liquidity than had been feared. According to an updated estimate, marketable borrowing should total $760 billion in the first quarter, unexpectedly undershooting the $816 billion projected at the end of October amid higher-than-anticipated starting cash balances and an improvement in “net fiscal flows” (likely higher tax revenues). Investors remain wary however –...

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