Australian Bond Exchange

Australian Bond Exchange Weekly Newsletter 

6 May 2022

“It all comes down to interest rates. As an investor, all you’re doing is putting up a lump-sump payment for a future cash flow.” 

  • Ray Dalio

ABEWeekly 06-05-22

Key Points 

  • 25 basis point increase in cash rate
  • Interest rates rising in the rest of the world
  • Retail sales continues to be positive

The RBA finally increased official interest by 25bps and their current assumption is that the cash rate would rise to 1.5% – 1.75% by December 2022.

The RBA Governor, Dr Lowe emphasised these were not policy predictions and there was ‘‘considerable uncertainty’’ in the outlook, but it ‘‘was not unreasonable to expect’’ interest rates to eventually rise to 2.5 per cent. ‘‘We will do what is necessary to ensure the inflation outcomes are consistent with the medium-term inflation,’’ he said, adding the larger-than-expected first increase was about ‘‘getting back to business as usual’’.

The auction clearances in the residential housing market have fallen to new low in the last week of April which was even before the first interest rate increase in 11 years and commercial banks have already increased many rates well before the official hike which further highlights how far behind the market the RBA currently is. Variable house mortgage rates have increased to over 4.5% and current market anticipation assumes that they will raise to over 6% in the next 12-24 months!

(Christopher Joye from Coolabah Capital has written an excellent article just recently in regard to possible consequences this would have to the Australian housing market)

However, retail sales in Australia continued to perform well despite all the global uncertainties (catch up from the Covid lockdowns…) and according to data from the ABS, retail sales rose 1.6% month-on-month in March 2022 (1% higher than market’s expectations). All retail categories were positive, both month-on-month and year-on-year basis.


The FED has finally lifted official interest rates in the US with a much anticipated and much needed increase of 0.50%. Jerome Powell however, played down the prospect of a 75bps hike which initially calmed the equity markets, however this was short lived. Further aggressive tightening of a series of 50bps increases should be on the table for the next couple of meetings.

Powell also said that the US$9trillion balance sheet would be allowed to decline by US$47.5billion per month which further helps to tighten the money supply and slow down the US economy.

The Chinese economy continues to struggle under the Covid lockdowns and there was little respite from the Caixin/S&P Global survey, which showed a drop from 48.1 to just 46.0 in April. Anything under 50 is bad news for the economy and commodities, indicating a slowdown in Chinese manufacturing activity. In some further bad news, Chinese services activities slumped to its weakest level in more than 2 years in April as Covid lockdowns killing off consumer spending and further threaten economic growth.

Indian Prime Minister Narendra Modi recently embarked on a three-country tour of Europe, beginning with Germany, as the West continues its charm offensive amid India’s neutral position on Ukraine. For German Chancellor Olaf Scholz, it will be his second meeting with a leader of an Asian democracy in the space of a few days, following his trip to Japan last week to meet Prime Minister Fumio Kishida. Scholz is expected to make India an invitee to the next G-7 summit, which will take place in the Bavarian Alps in June. He will also have an eye on unwinding India’s tight defence relationship with Russia by pushing European defence firms to fill the gap.


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

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