Australian Bond Exchange Weekly Newsletter
29 July 2022
“The biggest risk of all is not taking one”
– Mellody Hobson
Key Points
- Australian CPI at 6.1%
- FED getting closer to the neutral rate
- Chinese bank customers very unhappy
Australia
As expected, Australian inflation surged to levels we haven’t seen for decades. The June quarter CPI increased by 1.8% with the annual rate reaching 6.1%. This did not come as a major surprise and further strengthened the case for the RBA to continue to move the official cash rate higher. We expect another 50bps next week and probably followed by another one in September moving the Australian cash rate to 2.35%.
One of the key issues still remains the skill shortages and the new Albanese government is finally getting serious about catching up with migration. Home Affairs Minster, Clare O’Neil said recently that she would prioritise processing offshore permanent skilled worker applications which hopefully should get the program back on track.
Global
The US FED lifted benchmark rates as expected by 75bps, taking the rate to a range of 2.25% to 2.50% which followed on the heels of a 75bps hike at the last meeting. US stocks and bonds rallied following comments from Mr. Powell, easing fears somewhat that the US is falling into a deep recession. Clearly, they have to do more work, but he backed away from future guidance and the FED will now be data-dependent and key economic data around the economy will provide information for future rate settings.
FED Chair Jerome Powell commented that “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.”
US growth has clearly slowed in response to this aggressive monetary tightening with recent US consumer confidence (Conference Board) numbers disappointing and new home sales in June falling by 8.1% to a 26-month low.
The bad news out of China continued this week as some worrying stories about people queuing in front of banks bring memories back of the GFC a decade ago. Apparently, Bank of China customers have been rushing to withdraw funds in a desperate bid to avoid losing access if the bank opts to put a freeze on accounts. (Long queues have also been spotted outside the Bank of China at the Haymarket Branch in the Sydney CBD!)
Contact us if you have any questions or would like any assistance.
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