Daily Flows

• Activity is expected to be limited today as NSW banks enjoy a holiday.
• On Friday, A leading rate of 5.30% for 2 years from an ‘A’ rated counterparty attracted significant flow.
• The NCD market is enjoying balanced supply and demand of funds, reflected in a prolonged period of +45 for 3 months as the market level.

RBA Forecasts Inflation Returning to 2.8% by the End of 2025

• Last Friday, the RBA released their Statement on Monetary Policy.
• The SOMP has come as a pivotal time, as demand is subsiding, supply side factors are easing and inflation is decelerating.
• The RBA revised downward forecasted GDP, citing China’s post-COVID-19 weaker than expected recovery as a contributing factor.
• They are forecasting unemployment to rise to 4.5% by the end of 2024 and Inflation to drop to 3.25% by the end of 2024.
• The May SOMP had the peak cash rate at 3.75%, Now they are assuming a peak cash rate of approximately 4.25% by the end of 2023, dropping to 3.25% by the end of 2025.
• They have forecasted inflation not reaching the Mid-point of 2-3% inflation target by 2025 but seemed to have reach a point where either a hike or pause has balanced risks.

Mixed U.S. Jobs Data

• Non-farm payrolls came in weaker than expected, with the U.S. economy creating 187K vs market expectations of 200K in June.
• However, the unemployment rate fell by 0.1% to 3.5% (unexpectedly) and wage growth was higher.
• This trend of a tight labour market with signs of weakened aggregate demand is also apparent in Australia’s economy.
• Central banks will monitor labour markets closely to see if wage growth will creep into supply side costs and place upward pressure on prices.

The Week Ahead

• On Tuesday, the RBA’s meeting minutes are released. With the SOMP recently printed and an anticipated pause at the meeting no surprises are expected from this data.
• Industrial data is out from China. Last month saw production rise by 4.4% YoY beating forecasts. Markets will be keen to see if this upwards trend continues.
• In the U.S. retail sales and the FOMC minutes are released.
• The UK employment and inflation data is printed throughout the week.
• With the UK struggling to curb inflation the Bank of England will be looking for reprieve from these data points.