Australian Bond Exchange Weekly Newsletter
Friday 31 March 2023
Source, Australian Bond Exchange
- The “Organisation for Economic Cooperation and Development” (OECD) growth expectation for Australia is 1.8 per cent for 2023 (AUS)
- The February “Consumer Price Index” (CPI) slowed to 6.8 per cent from 7.4 per cent last month (AUS)
- The SVB has been bought by rival First Citizens (US)
- The latest data from February, shows that the US inflation rate is 6.04 per cent (US)
- The Fed’s cash rate in the United States is 4.83 per cent since 27 March 2023 (US)
- Euro area annual inflation was 8.5 per cent in February 2023, down from 8.6 % in January 2023 (EU)
- The European Central Bank (ECB) has raised the deposit benchmark rate by 50 basis points leaving it at 3.50 per cent in March (EU)
- Rates were increased to 4.25 per cent (UK)
- Inflation is 10.4 per cent (UK).
The February “Consumer Price Index” (CPI) slowed to 6.8 per cent from 7.4 per cent last month.
The most significant drivers of inflation have been electricity, holiday travel, dairy, and building a new home. For example, the cost of building a new home is 13 per cent higher than a year ago due to higher material costs and labour shortages.
The markets expect the “Reserve Bank of Australia” (RBA) to hold the cash rate at 3.6 per cent at its next meeting in April. However, economists still expected the RBA to raise the cash rate another 0.25 per cent in May to continue to slow the economy.
United States (US)
The latest news has been around the demise of the “Silicon Valley Bank” (SVB). While investors continue to worry about the stability of the US banking sector, the SVB has been bought by rival First Citizens. Investors welcomed the deal.
The latest data from February shows that the US inflation rate is 6.04 per cent.
However, essentials have increased significantly; food prices, rose 9.5 per cent compared to a year ago and energy prices increased 5.5 percent. The Fed’s cash rate in the United States is 4.83 per cent since 27 March 2023.
European Union (EU)
Euro area annual inflation was 8.5 per cent in February 2023, down from 8.6 per cent in January 2023. The European Central Bank (ECB) has raised the deposit benchmark rate once again by 50 basis points leaving it at 3.50 per cent in March.
United Kingdom (UK)
The UK’s “Monetary Policy Committee” (MPC) have raised interest rates again in response to rising inflation which stands at 10.4 per cent (way above MPC’s 2 per cent target). Accordingly, rates were increased to 4.25 per cent.
What does this mean for you?
First, the Australian Bond Exchange (ABE) has no bonds from US banks. Hence, our coupon payments are not dependent on the risk of the US financial markets and are not affected by the failures such as the SVB and Signature Bank. Second, “Having bonds in your portfolio is a great way to diversify your investment strategy; adding them to your investment portfolio will help you to add stability to your portfolio”. (Tim Sylvester ABE).
We are interested in hearing your thoughts, if you hold a different view of where the markets are heading, please let us know as we would love to have a discussion about it.
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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.
Copyright © 2023 Australian Bond Exchange Pty. Ltd. (ABN 73 605 038 935, AFSL 484453)
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Federal Reserve. (2023, March 28). Selected Interes Rates. Retrieved from https://www.federalreserve.gov/releases/h15/
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House of Commons Library. (2023, March 23). Interest Rates and Monetary Policy: Key Economic Indicators. Retrieved March 29, 2023, from https://commonslibrary.parliament.uk/research-briefings/sn02802/
YCharts. (n.d.). US Inflation Rate. Retrieved 03 29, 2023, from https://ycharts.com/indicators/us_inflation_rate#:~:text=Basic%20Info,long%20term%20average%20of%203.28%25.