11 November 2022
- Reserve Bank revises inflation forecasts
- US CPI index
- China’s producer price index falls
- Current investment opportunities
The Reserve Bank (RBA) has released its November Statement on Monetary Policy (SoMP), with revised forecasts for growth, unemployment and inflation. Due to a lift in inflation in the September quarter inflation report, the Bank has lifted its forecast for headline inflation in 2022 from 7.8% in the August SoMP to 8%. The forecast for inflation in 2023 has also been revised from 4.3% to 4.7% and 2024 from 3% to 3.2%.
In a speech on Wednesday night, RBA deputy governor Michele Bullock said forecasting is becoming increasingly difficult amid ‘unexpected shocks and that forecasting was a crucial part of the monetary policy process as the RBA board needed to form a view on how its policy decisions might impact the economy and inflation in the future.
Bad weather and energy prices, which the RBA said couldn’t have been predicted, also led to an adjustment in its expectations for economic growth and inflation.
“Retail prices of electricity and gas have increased by 10%–15% since the middle of the year, with much of this effect to come through in the December quarter CPI. This is consistent with our expectations a few months ago. Since then, however, we’ve learned that larger electricity and gas price increases than previously assumed are now likely in 2023,” Bullock said.
“We now expect headline inflation to peak around 8% at the end of 2022.”
The US consumer price index (CPI) showed the prices paid by urban U.S. consumers for a basket of items cooled down in October, a sign of relief that the Fed’s hawkish monetary policy is coming to an end.
Risk assets reacted positively to the US CPI release, with equities and bonds rallying following the lower-than-expected print for October. US CPI increased 7.7 percent for the 12 months ending October, a decrease from 8.2% in the prior month and represented the smallest annual increase since the period ending January 2022. Core CPI (ex food & energy) rose 0.3% month on month (est. +0.5%) and increased 6.3% on an annual basis (est. 6.5%) which was a decrease from 6.5% in September.
US treasuries rallied across the curve, with the 2yr yield falling to 4.33% (-25bp) and the 10yr decreasing to 3.84% (-24bp). Eurozone and UK yields were all lower in response to news out of the US, with 10yr Gilts decreasing to 3.28% (-16bp) and10yr Bunds falling to 2.00% (-16bp).
The larger than expected deceleration strengthened a market view that inflation may have now peaked and that the Fed may start to slow the pace of tightening following four consecutive 75 basis-point interest rate hikes. Equities posted gains, the S&P 500 was up 4.80% late in the day and the NASDAQ was up 6.46%, with tech, consumer discretionary, real estate, and communications the strongest performing sectors of the S&P 500.
Outside of the US, China’s producer price index (PPI), which reflects the prices that factories charge wholesalers for products, fell by 1.3 percent in October, reversing from a 0.9 percent increase in September. The price falls indicates a sluggish economic environment, amid soft demand, disruptions from China’s zero-Covid policy and declining commodity prices.
Current Investment Opportunities
ABE is pleased to announce that we finally have an allocation to Under Armour Inc, after months of monitoring this position. Offering a fixed yield of 6.00% per annum until June 2026, it is a great opportunity to add a globally recognisable brand to your investment portfolio.
Contact us to find out more details.
Copyright © 2022 Australian Bond Exchange Pty. Ltd. (“ABE”). ABE provides both general and specific financial product advice. Unless otherwise stated, any advice contained in this content is of general nature only and any information, advice or recommendation has been provided by ABE without taking account of your objectives, financial situation or needs. Because of this, you should before acting on any information, advice or recommendation from ABE consider the appropriateness of the information, advice or recommendation, having regard to your objectives, financial situation and needs. If this document, or any information, advice, or recommendation, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure document relating to the product and consider the document before making any decision about whether to acquire the product. ABE, its directors, representatives, employees, or related parties may have an interest in any companies or entities, or any financial product issued by companies and entities, and may earn revenue from the sale or purchase of any financial product, referred to in this document or in any information, advice, or recommendation. Neither ABE, nor any of its directors, representatives, employees, or agents, make any representation or warranty as to the reliability, accuracy, or completeness, of this document or any information, advice, or recommendation. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or any information, advice, or recommendation. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a “wholesale client” as that term is defined in the Corporations Act 2001 (Cth). ABE strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. ABE does not make a market in the securities or products that may be referred to in this document