Hawkish repricing
I was bored on a flight earlier, and stumbled across some notes and a report from a couple of months back which noted how government policies and expenditure had played a role in resurgent inflation across 9 of the inflation categories, sending the 3-year government bond yield romping higher to 3.6 per cent.
Roll forward to today, and there arguably haven't been too many signs of improvement, with the 3-year yield rising to around 4.15 per cent by the close of business.
NDIS rorts continue apace in our part of the world, and presumably in other states besides.
The latest political expenses scandals in the media are of course in themselves immaterial, yet arguably speak to a general environment of profligacy.
Yesterday, Treasurer Chalmers reluctantly announced that energy bill rebates would finally be axed in December in a cost of living relief shift, in doing so recognising some of the pressures on the Federal budget.
Unfortunately, this will result in higher headline inflation next year, as the transition to renewables is proving costlier than hoped or claimed.
In the private sector, the main growth prospects seem to be data centres, and a likely to acceleration in dwelling investment.
Today, the Reserve Bank of Australia kept the cash rate target on hold as expected at 3.60 per cent, and after an initial sign of relief, markets repriced in a hawkish manner, with OIS pricing rising to above 4 per cent for September 2026.
While a lot can happen between now and then, a 25 basis points interest rate hike is priced in by June, with the February meeting shaping up as the first 'live' meeting depending upon how the December quarter inflation data looks.
Source: ASX
On the other hand, there's a bit of uncertainty about how to interpret the new monthly inflation gauge, and the RBA will presumably be looking for a further acceleration inflation before committing to a hike.
The unemployment rate is still currently trending higher, while the NAB Survey today didn't appear to provide too much news of concern, with business confidence dropping to the lowest level since April and new orders softening.
Cost pressures also appeared to be still trending lower on this survey, with final product prices recording only a 0.6 per cent quarterly rate, seemingly suggesting benign price pressures.
The Aussie dollar is trading back up at 66.4 US cents as markets absorbed the apparent confirmation of the end of the easing cycle.
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