Daily Flows

• There were healthy supply of funds yesterday. ADIs that were willing to pay at market levels attracted significant flow from Middle Market Investors in the TD space.
• 3 – 5 year placements are becoming more common place, market participants are eager to lock in a yield of 5.65% for 5 years as we near the end of the rate hike cycle.
• NCD activity was limited with minimal FI activity. That being said there is opportunity to lock in 3 months margins of +50 & +60.

More To Monthly Inflation Than Meets The Eye

• Yesterday, domestic monthly headline inflation came in for May at 5.6% YoY.
• This was significantly lower than market forecasts of 6.2%.
• Whilst on the surface, this print seems like relief for the RBA and their battle against inflation, underlying measures were less positive.
• Excluding volatile items and holiday travel – there was minimal variation in inflation (6.4% May YoY vs 6.5% April YoY).
• With the RBA describing last decision as finely balanced it will interesting to see if this print pushes them to a pause.
• One of the main RBA concern’s is unit labour costs which is running at 7.9% YoY.
• This is a metric that tracks the amount of wages a business has to spend to produce a unit of output.
• With the recent rises to award wages and minimum wage, the danger of a wage price spiral ensuing and reducing labour productivity further is a key factor that may see the RBA continue its rate hike path.