The news flow from the US last week was largely mixed with both positive and negative data.
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US initial jobless claims fell by 26,000 to 239,000 on the week ended June 24, and it was the biggest weekly drop since October 2021.
The fall came as a surprise as the market was expecting the recent increase of jobless claims to 265,000 would be maintained.
Following the data release, the US Treasury yields jumped in response, with the 10-year note rising by 14bps to 3.84 per cent and the 30-year bond increased by 10bps to 3.912pc.
Given the resilient labour outlook, the market is pricing in an 84pc probability of a 25bps rate hike by the Fed, up from a 76pc probability before the data release.
The terminal Fed funds rate has now risen further by another 5bps and will see 5.42pc by November this year.
On the other hand, the US consumer spending data slowed significantly, which is supportive of the Fed's mission to bring down inflation. The month-on-month consumer spending dropped rapidly from 0.6pc in April to just 0.1pc in May.
In Australia, inflation remains sticky, as shown by the latest monthly CPI data for May.
- Christopher Hindmarsh, JBWere Limited
After adjusting for inflation, the level of spending remained flat in May.
The personal consumption expenditures deflator rose by just 0.1pc compared to 0.4pc last month, leading to a year-on-year decline from 4.3pc to 3.8pc.
Similarly, the core personal consumption expenditure printed lower from 0.4pc in April to 0.32pc in May and 4.6pc year-on-year, suggesting a fall in underlying inflation in the US.
In Australia, inflation remains sticky, as shown by the latest monthly CPI data for May. Despite the monthly headline CPI of 5.6pc, year-on-year is lower than the market expectation of 6.1pc.
The core measure excluding volatile items such as fuel, fruit, vegetables and holiday travel, only ticked down marginally from 6.5pc to 6.4pc year-on-year.
The major contributors to the CPI number in May were housing which was up 8.4pc, and food and non-alcoholic beverages, up 7.9pc.
In housing markets, rent growth continues to accelerate further to 0.84pc month-to-month with an annualised rate of more than 10pc.
Dwelling approvals surged in May by 20.6pc month-to-month, led by a spike in apartment approvals in NSW. Detached approvals remained stable, with only a 0.9pc increase month-to-month.
Housing loan commitments increased by 4.8pc month-to-month in May and are still expected to increase with further rate rises.
- This article does not take into account the investment objectives, financial situation or needs of any particular person. Before acting on advice in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited AFSL 341162.
