Australian Bond Exchange Weekly Newsletter

3 June 2022

“If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.”

  • Ray Dalio

ABEWeekly 03-06-22

Key Points

  • Australian economy doing well
  • European leaders agree on partial Russian oil ban
  • China lock-down eases
  • President Joe Biden meets with Fed Chair in Whitehouse
Australia

The Australian economy continues to recover from the pandemic shock and recently released GDP figures are painting a very healthy picture. In one of his first news conference as our new Treasurer, Jim Chalmers commented that parts of the economy were “robust” and “resilient”, including the 48-year low unemployment rate. However, he also stated that there are big challengers of inflation, falling real wages and worsening cost of living. ‘‘I’ve tried to say there are elements of strong demand, tight labour market, there are some pleasing elements of the national accounts, but there are far more troubling aspects in our economy,’’ Dr Chalmers said.

Meanwhile, the Australian consumer continues to show strength with retail sales figures for the march of April increasing a healthy 9.6% from March (of course there was the long Easter holidays!!). Not surprisingly the best growth was in Eating Out and Clothing and Footwear. The consumer of course is still playing catch up from the lock-down, supported by record low unemployment and a healthy consumer household savings ratio. The latest deposits data shows households have stashed away almost $270 billion since January 2020.
The RBA will meet next week and is widely expected that they will continue with normalising interest rates to slow down the economy and fight inflation.

Global

Oil and energy prices continue to raise which of course is a major issue for the global economy. Improving demand highlights the lack of supply options in oil markets and there is a drastic contraction in Russian production. European leaders agreed to a partial ban on Russian oil, to punish Putin for the brutal war in the Ukraine which has been going on for more than 100 days.

Energy and commodities market also moved up on the back of some good news that China is finally easing some of the Covid restrictions as they reported the fewest new Covid cases in almost three months. This must be extremely pleasing news for long suffering residence of Shanghai and one can only hope that the Chinese official will come up with some urgently needed long-term solutions. One can only imagine the social unhappiness and tension which must be very high in some part of China with their officials and their handling of the dire situation.

Of course, higher energy and commodities prices doesn’t help the Fed and other Central Bankers who are trying to rain in very high inflation. President Joe Biden used a rare meeting with Fed Chairman Jerome Powell to declare that he is respecting the institutions’ independence. However, the US president used the Oval Office meeting to argue that while fighting inflation is one of his governments top priority, but that work was primarily the purview of the US Central Bank. Of course, the blame shifting is very intentional as he is facing a difficult situation for the upcoming US midterms election in November.

There are some early signs of slowdown out of the US economy and some recent employment data showed that the US job openings fell in April, but they of course remain at very high levels which continues to put pressure on wage increases as companies are scrambling for workers. However, nobody is really seriously considering that the Fed is likely to become less hawkish in its rate hick campaign unless we get a sustained move lower in inflation.

 

We currently have one of the most diversified bond portfolios you can find in Australia:

 

Goodyear Tire & Rubber

Our new Goodyear bond is a fixed coupon credit-linked note yielding 4.5% per annum and maturing in March 2027. Full documentation for the offer is available here.

Xerox

You can still invest in an Australian dollar fixed coupon credit-linked note over Xerox Holdings Corporation, a 6.5-year note offering a 4.50% per annum fixed rate with coupons paid half-yearly. You can read full documentation here.

Jaguar Land Rover

You can still invest in an Australian dollar fixed coupon credit-linked note over Jaguar Land Rover, a senior unsecured 5-year note offering a 4.50% per annum fixed rate with coupons paid half-yearly. You can read full documentation here.

 

 

Contact us if you have any questions or would like any assistance.

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