Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Inflation Beats Expectations, Pressure on the RBA

Thursday, 28th April, 2022

Daily Flows

  • Trade activity was relatively standard yesterday despite extraordinary movements in wider markets off the back of the inflation print.
  • Investors are taking advantage of sky-rocketing rates across the curve as ADI’s adjust to the rapidly changing environment.
  • ING Bank proved popular in yesterday’s trades, with 2.45% available for 1-year term deposits. Judo Bank also attracted funding at the 3-month level (1.05%).
  • Reference levels have experienced incredible moves since the CPI read, and almost all ADI’s are adjusting their rates as a result. 1.15% and 2.59% are currently available for 3 and 12-month TD rates, but levels are moving rapidly.
  • NCD’s and FRN’s are currently attractive due to their floating margins. Intesa Sanpaolo continue to offer the highest levels in the NCD space, with 0.94, 1.62 and 2.50% available for 3, 6 and 12-month terms. Domestic BBB ADI’s are offering +38 for 1-year NCD’s, with 1-year swap currently sitting at 2.10% as a guide.

Inflation Comes In Hot

  • Yesterday’s inflation smashed expectations!
  • CPI increased from 3.5% YoY to 5.1% YoY.
  • Trimmed mean increased by 1.40% QoQ, beating expectations of 1.20%. Similarly, YoY beat expectations of 3.40% YoY, coming in at 3.70%.
  • The largest contributors to headline inflation were food, fuel and construction prices.
  • Inflation now lies significantly outside of the RBA’s 2-3% target band.
  • Pressure was already mounting on the RBA, with most economists forecasting for a hike in June prior to the CPI release.
  • After the inflation read, several economists have now revised their forecast, calling for a hike next week, at the May meeting.
  • Large debate surrounds whether the increase will be by 15 or 40 basis points when the RBA hikes.

Lawrence Vosper, Nicholas Allan

Associate - Money Markets