Halister News

(Bloomberg) -- Today’s range of 3Q inflation readings could leave RBA with an option of shifting toward a more neutral bias, writes Bloomberg strategist Michael G. Wilson.

• OIS pricing for a November cut tumbled to 6% on Wednesday from 15% the day prior; yield on sovereign 3-year notes rose 2 bps to 1.74% while 10-year slipped 1 bp to 2.27%
• NOTE: 3-year bond futures may be capped by 200-DMA, Bloomberg analysis suggests
• As the gap between headline inflation and trimmed mean narrows, it will encourage the RBA to leave monetary policy untouched; see chart
  • The task of weakening the AUD may be left to a Fed hike in December, which if it eventuates, may stimulate tradables inflation
• Any further easing in the policy rate should be preceded by a cut to the RBA’s inflation expectations. Against a backdrop of rising commodity prices, such a revision may be unlikely
• The 19.5% rise in fruit prices on reduced supply caused by weather events is seen as temporary; without it tradables inflation would have been softer
  • Increases in regulated fees, charges for tobacco, property rates, charges and a new motorist injury scheme in WA all seen as one time
• Market-based inflation excluding volatile items increased by 1.2% through the year to 3Q, remaining at a four-year low; that should help further dampen inflationary expectations