Australian Bond Exchange Weekly Newsletter
16 December 2022
- Australia inflation ongoing concerns, 8 per cent peak expected Q4,2022
- S&P/ASX200 Friday morning down 1 per cent 0.39 per cent to 7131.60
- ABS statistics; increase in vacant jobs, unemployment rate steady
- US FED raises interest rate by 0.5 basis points, to target 4.25-4.5 per cent
- US Inflation starts to slow down in the US, FOMC continue to monitor data
- EU ECB expected to raise rates Thursday (European time).
The share market was up two consecutive days earlier in the week, however ending the week with sharp falls following a negative futures market trend, and risk off sentiment coming after the FEDs interest rate hikes on Wednesday. S&P/ASX200 down 1 per cent, 7131.60 as of Friday Morning.
Following on from Governor Phillip Lowe commentary last week that inflation is still too high, (currently sitting at 6.9 per cent1), inflation is expected to peak at 8 per cent over the year to the December 2022 quarter. We expect a decrease in inflation over the next couple of years ultimately reaching the RBA’s target of 3 per cent in 2024.
The national jobless rate is steady at 3.4 per cent, with 64,000 jobs added to the economy. Whilst the unemployment rate has fallen, the jobs vacancy rate has increased. With September quarter growth in jobs and hours worked slowing.2
On the 14th of December the FED raised interest rates by 0.5 per cent (sitting at 4.5 per cent), which is more modest than the previous 0.75 per cent consecutive increases.
Inflation has started to slow in the US. In November the CPI increased 0.1 per cent (seasonally adjusted) and rose to 7.1 per cent over the last 12 months.
The FOMC have a 10-year yield forecast of 3.10 per cent for December 2023, which is on track if annual inflation continues to decelerate rapidly towards target, and wages growth slows.
The ECB has been raising rates at an unprecedented pace, due to inflationary pressures after the reopening of the economy after COVID-19 and higher costs of living since the Russia-Ukraine conflict. It is predicted that the ECB will raise interest rates on Thursday (European time) for a fourth straight time.
In the UK, the market is expecting that the Bank of England; with inflation at a 41-year high, will raise rates to 3.5 per cent or more on Thursday (UK time).4
1 Dew, Laura. “RBA pushes to inflation peak to 8%.” Momentum Media-Money Management, published 23 Nov https://www.moneymanagement.com.au/news/funds-management/rba-pushes-inflation-peak-8. Accessed 15 Dec 2022.
2 Media Release. “More than 3% of jobs vacant in September quarter”. ABS, published 14 Dec https://www.abs.gov.au/media-centre/media-releases/more-3-jobs-vacant-september-quarter. Accessed 15 Dec 2022.
3 Canepa, Francesco and Koranyi, Balazs. “ECB to slow rate hikes and lay out plans to drain cash” Reuters, published 15 Dec 2022, https://www.msn.com/en-us/money/markets/ecb-to-slow-rate-hikes-and-lay-out-plans-to-drain-cash/ar-AA15i1AM. Accessed 15 Dec 2022.
4 Milliken, David “Bank of England set to raise rates to 3.5% after inflation hits 41-year high” Reuters/Euro News, published 8 Dec 2022, https://www.euronews.com/2022/12/07/britain-boe Accessed 15 Dec 2022.
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