ABE Weekly - Alan Kohler interviews our CEO, Bradley McCosker

Australian Bond Exchange Weekly Newsletter

Friday 14th April 2023

Source, Australian Bond Exchange

Our CEO, Bradley McCosker recently spoke to Alan Kohler to discuss how and why you should invest in bonds, and how the Australian Bond Exchange gives retail investors access to the bond market directly. Listen to the interview Here

World Economic Outlook:

The International Monetary Fund (IMF) has released its World Economic Outlook, where it shows the world economy is experiencing a sharp slowdown and generalized higher inflation. According to the IMF, global growth is expected to slow from 6 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023.

This downturn, according to the World Bank, is likely to be widespread, and there is a risk that it will push the world economy into recession; furthermore, slowing growth would affect 95 per cent of advanced economies and almost 70 per cent of emerging markets. With this outlook of the economy, the local housing and share market will be susceptible to risks. Therefore, assets that can hold and increase value during economic downturns are much more attractive now.

Source, World Economic Outlook, IMF.

Australia

It seems that many Australians took out mortgages based on the Reserve Bank of Australia (RBA)’s messages in 2021 pointing to cash rate increases happening only after 2024. The RBA’s cash rate remains unchanged at 3.60 per cent. However, after 10 consecutive cash rate increases by the RBA, many mortgage payers are struggling to make ends meet. In fact, the IMF has warned that the Australian housing market is at high risk of mortgage defaults.

United States (US)

The Fed’s cash rate is 4.83 per cent since 11 April 2023. In terms of inflation in the USA, measured by the Consumer Price Index (CPI), it slowed down to 5 per cent in March, down from a peak of 9.1 per cent in June 2022. Inflation needs to decrease even more, and for that to happen unfortunately unemployment needs to increase. However, the job market in the USA has been resilient, and although the non-farm payroll job openings fell below 10 million for the first time since 2021, it is expected that when the data for March is released, it will show that 235,000 jobs have been added.

European Union (EU)

European Central Bank (ECB) Vice President Luis de Guindos stated that core inflation pressures are proving more persistent than expected. He also mentioned that the measure of core consumer-price growth, which excludes energy and food and is currently the primary indicator for ECB interest-rate decision-making, is likely to remain high.

In contrast, ECB’s Chief Economist, Philip Lane, has cautiously expressed hope about the economy of the EU. However, he declined to provide a clear indication of whether the period of interest rate hikes was coming to an end. During an interview with Cyprus News Agency last week, Lane stated that a considerable amount of effort had been made at the EU level to address inflation, but the decision to raise interest rates in May is contingent upon several factors. This comes as the inflation rate in Europe has decreased to its lowest point in over a year. However, because of the sustained underlying pressure on prices (in other words, because inflation has been sticky), monetary policymakers still face the challenge of what to do with the cash rate next. The market still expects cash rates to rise by another 0.5 per cent.

United Kingdom (UK)

The Bank of England (BOE) raised the cash rate to 4.25 per cent in March by .25 per cent. After the decision to raise UK interest rates again, the BOE said it expected inflation to decrease for the rest of the year. However, regarding inflation, the Consumer Prices Index, including owner occupiers’ housing costs (CPIH), increased by 9.2 per cent from 12 months to February 2023. In other news, Prince Harry will attend the coronation without Meghan.

What does this mean for Investors?

Amid the current economic uncertainty, diversifying your investment portfolio to include a mix of bonds is more important than ever. Bonds can provide a stable source of income and a hedge against stock market volatility and reduce reliance on external factors beyond your control. Therefore, it’s essential to consider a mix of different types of bonds, including government, corporate, and high-yield bonds, to mitigate risk and optimize returns. In addition, reviewing and adjusting your bond investments can help you achieve your long-term financial goals and more confidently weather the ongoing economic uncertainty.

We have a new issue being released shortly from a well-known Australian Company. Contact us to find out more

Disclaimer: The information and any advice provided in this newsletter has been prepared without considering your objectives, financial situation or needs.  Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things. You should obtain the relevant appropriate document for any product mentioned and consider its contents before making any decision.

References

ABC News. (2023, April 12). IMF warns Australian housing market at high risk of mortgage defaults ahead of global economic downturn. Australia. Retrieved April 13, 2023, from https://www.abc.net.au/news/2023-04-12/imf-global-economic-outlook-downturn-australia-housing-market/102211826

BBC News. (2023, April 12). Interest rates likely to fall to pre-Covid levels, IMF predicts. Retrieved April 13, 2023, from https://www.bbc.com/news/business-65237286

BBC News. (2023, March 23). UK Interest rates: What the rise means for you. Retrieved April 13, 2023, from https://www.bbc.com/news/business-57764601

Bloomberg Markets. (2023, April 11). The Weekly Fix.

News.com.au. (2022, April 13). Reserve Bank of Australia board member admits “terrible” error after interest rates fiasco. Australia. Retrieved April 13, 2023, from https://www.news.com.au/finance/economy/interest-rates/reserve-bank-of-australia-board-member-admits-terrible-error-after-interest-rates-fiasco/news-story/cfc39b688d75a45675f4da68c43295ff

Office for National Statistics. (n.d.). Inflation and price indices. Retrieved 04 13, 2023, from https://www.google.com.au/search?q=inflation+in+the+UK+now&sxsrf=APwXEdfElXjvgr6putIVFyZap2VcvefUXQ%3A1681358402741&ei=Qn43ZKjdLJXgseMPu-SN0Ac&ved=0ahUKEwiohteS_KX-AhUVcGwGHTtyA3oQ4dUDCA8&uact=5&oq=inflation+in+the+UK+now&gs_lcp=Cgxnd3Mtd2l6LXNlcnAQAzIFCA

The Guardian. (2023, April 12). US inflation at 5 per cent, the lowest it has been since 2021. Retrieved April 13, 2023, from https://www.theguardian.com/business/2023/apr/12/cpi-inflation-rate-march-prices-fed

US Inflation Calculator. (n.d.). Current US Inflation Rates: 2000-2023. Retrieved April 13, 2023, from https://www.usinflationcalculator.com/inflation/current-inflation-rates/