Australian Bonds Mixed on Soft Economic Data, Firm Crude

Australian Bonds Mixed on Soft Economic Data, Firm Crude

18 May 2016, 08:53
Roberto Jacobs

Australian Bonds Mixed on Soft Economic Data, Firm Crude

The Australian government bonds traded mixed on Wednesday after data showed weaker than expected first quarter wage price index. Also, firmer crude oil prices restricted investors from safe-haven buying. Moreover, bond prices are likely to be ruled by the movements in global crude oil. The yield on the benchmark 10-year Treasury note which moves inversely to its price remained steady at 2.309 pct and the yield on the 2-year Treasury bond dipped 1bp to 1.645 pct by 0540 GMT.

The Australian Q1 wage price index rose 0.4 pct q/q, lower than the market expectations of 0.5 pct rise, from 0.5 pct in the previous quarter of 2015. The Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of Australia's target. Today, the crude oil prices rose after the American Petroleum Institute reported that U.S. crude supplies fell by 1.1 million barrels for the week ended May 13. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 barrel per day (bpd) since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 pct below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 pct to 4.04 million bpd in April, compared with the same time last year. Meanwhile, the International benchmark Brent futures rose 0.32 pct to $49.44 and West Texas Intermediate (WTI) jumped 0.39 pct to $48.50 by 0540 GMT.

Yesterday, the Reserve bank of Australia in its May policy meeting minutes mentioned that the members discussed merits of waiting for more information before cutting rates at may 3 meeting and on balance members were persuaded that a rate cut would help inflation return to target over time. Indicated members noted recent data on inflation and labour costs had been lower than expected and recent developments had not led to a material change in economic outlook. Said very accommodative monetary policy helping economy rebalance following mining boom and lower AUD since 2013 assisting economy, but a rising AUD would complicate this. Members noted a recent rally in commodity prices was not expected to boost mining investment and growth outlook for Australia's major trading partners had been revised a little lower since February. Chinese growth had moderated further in Q1, more stimulatory policy should provide support and employment growth had slowed in the first quarter of 2016, although members noted that it had remained stronger than population growth over the past year, they added.

The markets will now focus on April unemployment rate on Thursday (0130 GMT). The benchmark Australia's S&P/ASX 200 index was trading down 0.01 pct, or 0.05 points, at 5,361.5 by 0540 GMT.

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