Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Q2 CPI, IMF Downgrades Growth

Wednesday, 27th July, 2022

Daily Flows

  • Yesterday saw flows all across the curve at a range of rates.
  • Judo revised their 3 month TD rate to 2.70%, which saw unrated ADIs move their benchmark to match.
  • 4.25% was achieved for a 12 month TD from a domestic BBB bank.
  • Investors saw attractive returns of just under 4.50% for a 3Yr fixed bond and over 4.70% for a 4Yr in BBB+ lines.

Eyes on CPI

  • All eyes turn to today’s Q2 CPI data which is released at 11:30am.
  • Markets are calling for an increase to headline inflation of 1.2% (YoY) taking the print to 6.3%.
  • Trimmed mean CPI is expected to hit 4.7% YoY, well outside of the RBA’s 2-3% range.
  • If the data comes out much hotter than expected, the RBA may be forced into making a more aggressive move when they meet next Tuesday, and 75 basis points will be talked about.
  • The RBA are ultimately faced with the questions of: How much can Australian households absorb and how narrow does the path to avoid recession become?

IMF Revise Growth

  • The IMF revised their global growth forecasts overnight.
  • The vaseline forecasts sees growth at 3.2% this year and falling to 2.9% next year.
  • A major contributor to the fall in growth is the U.S., with tighter monetary conditions and reduced household purchasing power (inflation) is driving down growth.
  • China’s Covid policy and real estate outlook also is placing downward pressure on growth.
  • The Euro area, their energy crisis and the war are also contributing to slow growth.
  • Overall, growth forecasts have been downgraded, inflation forecasts elevated and contractionary monetary policy along with suppy chain disruptions are the biggest contributors.

Nicholas Allan

Curve Team