Australian Bond Exchange

Australian Bond Exchange Weekly Newsletter

18 November 2022

ABE Weekly 18 November 22

 Key Points

  • Unemployment rate falls to 3.4% 
  • The Reserve Bank likely to lift cash rate by 25 bps 
  • Bonds remain a worthy diversifier  
  • Fallout from FTX continues 

Australia’s unemployment rate has fallen to 3.4 per cent, with 32,000 people finding work over the past month according to the Australian Bureau of Statistics (ABS) labour force data. Most of the country’s workforce (70%) is now employed on a full-time basis; a level not seen on a consistent basis since mid-2014.  

The increase in full-time employment relative to part-time employment contributed to an increase in 43 million hours worked during the month. Australia’s participation rate remained constant at 66.5 per cent, still 0.2 per cent below the peak participation rate achieved in June 2022. 

These labour force results provide insight into the recent Wage Price Index (WPI) data which showed wages growth accelerated markedly in the September quarter, to an average rate of 1 per cent in the quarter. The growth was driven by private sector wages, which grew at twice the rate of public sector wages at 1.2 per cent versus 0.6 per cent, in seasonally adjusted terms.  

Labour market tightness is now enabling workers to bargain for higher wages; however, workers face further pain with predictions of higher interest rates to tame inflation and another 10 per cent fall in house prices.  

The Reserve Bank is likely to lift the cash rate by another 25 basis points next month, to 3.1 per cent, as data shows the economy remains strong despite soaring inflation and signs of a global downturn. Inflation is 7.3 per cent and is forecast by the RBA to reach 8 per cent by the end of the year. The International Monetary Fund (IMF) said Australia was likely to avoid a recession but urged the central bank to keep lifting interest rates to prevent high inflation from becoming entrenched.  

With high and rising inflation, bonds retain their status as a worthy diversifier. During times of economic uncertainty, it is key that investors invest in defensive assets to offset riskier assets. Bonds offer crucial balance and additional income to an investor’s portfolio, something that is even more important as we face high inflation and a rising cost of living.  

Financial markets have bounced around, last week stock market investors were happy as equity markets posted gains on the back of lower-than-expected US inflation data results. This week, comments from Fed’s Bullard insisting that rates will have to go up to a minimum of 5-5.25%, and possibly as high as 7% for policy to be restrictive didn’t help equity markets. The Dow Jones Industrial Average (Dow) was flat, the Nasdaq fell 0.35%, and the S&P 500 fell 0.30% on Thursday as investors weighed Bullard’s remarks for more rate hikes.  

While slow and steady performance might not grab as much attention as riskier assets such as shares, over the long term, bonds prove to be an attractive and attainable source of steady, reliable income, which is ultimately the most important thing for investors especially in an uncertain market.  

It’s been rough for cryptocurrency investors, with the collapse of high-profile exchange FTX enough to see Bitcoin trade down toward USD $15,000 per coin, down almost 80% from its peak around a year ago. This week, the fallout from FTX continues, this time taking others with it. The latest victim of Crypto’s apparent demise is the Winklevoss twins’ exchange, Gemini. 

It halted redemptions from its Earn product, which lets investors accrue as much as 8% in interest by lending out their crypto, leaving $700 million of customer money tied up. 

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. 

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