US TSYS: Tsys Curve Bull-Flatten, Focus Turn To Friday's Employment Data

November CPI data is published on Wednesday January 8 and being mid quarter will include more detail on the domestically-generated services components. CBA is forecasting a pickup in headline inflation to 2.6% y/y from 2.1% due to the expiry of some electricity rebates, which are likely to cause volatility until July this year. Thus, the RBA has said that it is focussing on the underlying trimmed mean measure. CBA expects that it will undershoot RBA forecasts when Q4 prints on January 29.

• CBA is forecasting November trimmed mean inflation to moderate 0.1pp to 3.4% y/y and its current estimate for Q4 is 0.6% q/q and 3.3% y/y after 0.8% and 3.5% in Q3. It sees the risks around its forecasts as skewed to the downside.  The RBA forecasted Q4 to moderate to 3.4% y/y in its November update.
• “It would not take much to see us revise lower our nowcast for the trimmed mean CPI; we have been quite conservative in our translation of the monthly figures into their quarterly equivalent.”
• “An inflation outcome lower than the RBA’s forecast is a necessary condition for an easing cycle to begin in February. It may not be sufficient, however, given the RBA’s current views on the unemployment gap.”
• CBA expects “an ongoing moderation in market services inflation, to around 4¼%/yr from 4.6%/yr. This will be what the RBA watches most closely.”
• “An 18%/mth surge in electricity prices as government energy rebates roll‑off. We expect the largest impact in November from an unwind of WA rebates. Further large increases are set to occur in Q1 25, driven by the unwind of Qld rebates.”

In post-Tokyo trade, JGB futures are slightly weaker, -4 compared to settlement levels, after US tsys finished mixed with the short end outperforming. US yields finished flat to 4bps higher across benchmarks. 

• Early market swings were tied to a Washington Post article reporting that the Trump administration was "exploring plans" to apply tariffs to every country “but only cover critical imports.” The report suggests that Trump’s initial tariff plan may track relatively closely with the Biden administration’s targeted tariffs.
• Both rates and equities surged higher on the article - until Trump denied the watered-down approach - with US tsys reversing course and extending lows by midmorning.
• Record corporate debt issuance for a single session climbed over $50B, rate lock hedging added additional pressure to rates.
• Tuesday’s US data calendar includes JOLTS, ISM Services and Tsy 10Y Re-Open.
• Market pricing for a BoJ hike at the Jan meeting remains under 50% priced at this stage, sub mid-Dec highs. Governor Ueda reiterated yesterday the path for rates is higher but timing still remains uncertain. Note next Tuesday we hear from Deputy Governor Himino.
• Today, the local calendar will see Monetary Base data and 10-year supply. 

TYH5 is 108-15+, -0-02+ from NY closing levels. 

• US tsys finished the Monday session with a bear-steepener. US yields were flat to 4bps higher across benchmarks.
• Early market swings were tied to a Washington Post article reporting that the Trump administration was "exploring plans" to apply tariffs to every country “but only cover critical imports.” The report suggests that Trump’s initial tariff plan may track relatively closely with the Biden administration’s targeted tariffs.
• Both rates and equities surged higher on the article - until Trump denied the watered-down approach - with Treasuries reversing course and extending lows by midmorning.
• Record corporate debt issuance for a single session climbed over $50B, rate lock hedging added additional pressure to rates.
• Tuesday’s US data calendar includes JOLTS, ISM Services and Tsy 10Y Re-Open.