Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Inflation Surprise, Fed Hikes Again

Thursday, 28th July, 2022

Daily Flows

  • Flows were subdued yesterday as investors remained watchful surrounding the CPI Print.
  • Reference rates have rallied hard on the back of better than expected data and this is likely to amount to reduced returns today across all tenors, but particularly in longer end rates.
  • Unrated ADIs increased their margin and offered 2.80% for 3 months.

Inflation Prints Better Than Expected

  • Yesterday’s inflation data printed better than expected, but still saw a sizeable increase.
  • Headline inflation printed at 6.10%, with the market expecting a read of 6.30%.
  • Most importantly, trimmed mean inflation printed at 4.90%, beating expectations by 0.20%.
  • The most recent U.S. Inflation prints have seen core inflation drop, whilst headline inflation rises. This is heavily driven by energy, food and oil prices.
  • In Australia, our economy is built on natural resources, with an abundance of natural gas, coal and iron ore. As such, the increase in core inflation becomes more substantial, with the energy crisis occurring around the world not being as significant.
  • However, the government did implement a fuel levy, which cut the upward pressure at the pump for consumers. It is important to note that this is the first inflation print encapsulating the levy. Headline inflation reflected the price pressure alleviation.

Federal Reserve Hikes by 75 Basis Points

  • The Federal Reserve hiked by 75 basis points overnight, lifting the cash rate to 2.50%.
  • Powell was adamant that the U.S. is not in recession, yet noted that a slow down in growth is coming.
  • During the conference, Powell stated that forward guidance will no longer be given and significant hikes will be dependent on the data.
  • With the next meeting falling on 21st September, the Fed will have ample data to direct them. Addressing inflation remains the core objective.

Nicholas Allan

Curve Team