Upside Risks Materialise

• At Friday’s committee testimony, RBA officials conceded that the upside risks to inflation flagged in earlier commentary have indeed materialised, striking a hawkish tone that signals the start of what could become a hiking cycle, as inflation is clearly the principal focus. Markets have 2.5 hikes priced, with around a 90% chance of a move in September.
• US bond yields continued to rise into the end of last week following the Fed’s hike, with the US 10yr up 7bp to 5% and the 2yr also 7bp higher at 4.76%.
• With geopolitical tensions still at the fore and oil keeping inflation entrenched globally, further US tightening is widely expected, and markets now price around 33bp of additional hikes by the end of 2026.
• Locally, the 2026 Intergenerational Report is released today. Produced by Treasury roughly every five years, it projects the economy and the budget over the next 40 years, covering population growth, ageing, participation and productivity, and the long run fiscal pressures that follow from them.