“Each individual should be able to make good decisions without peer pressure.”
- Ana Monnar
- RBA surprising 0.50% increase
- Housing market continues to cool off
- Australian Farmers going from strength to strength
- Amazing admission by US Treasury Secretary Janet Yellen
- OPEC+ agreed on increased oil supply
The RBA finally made their move and continue to play catch up with the market. Dr. Lowe surprised economists (most of them anticipated a rise between 25 to 40bps) when they increased the cash rate from 0.35 per cent to 0.85 per cent. This was the largest increase in 22 years and indicated inflation would peak higher than the 6 per cent forecast in May. On the back of that, we have responded immediately and raised our cash rate to 1.25%.
Governor Philip Lowe commented ‘While inflation is lower than in most other advanced economies, it is higher than earlier expected,’ Dr Lowe is citing supply chain disruptions and Russia’s invasion of Ukraine amongst some of the main contributors (also one questions what higher interest rates will do to ease these pressures!). However, this move by the RBA still leaves them behind of what the bond market is already anticipating, and an excellent example of this is that the all-important 3month BBSW is already now trading at 1.25%.
The property bubble, not surprisingly, is slowly deflating and Sydney’s auction clearance rates continued to drop at recently stood at only 59%. Apparently more than two in five homes failed to sell at auctions last week as buyers stayed on the sidelines. Vendors of course are also feeling nervous with many auctions cancelled or withdrawn and more than half of homes are sold before auctions. This price adjustment was way overdue and welcome news for the RBA and which will also dampen the all-important consumer confidence.
In some good news for our export sector, The Australian Banking Association recently stated in a new report from their member banks that they experience strong lending to the agribusinesses with an almost 30% increase over the previous year. ‘This data tells us there’s both a high degree of optimism and confidence in the sector, despite a long period of savage drought,’ the Associations director, Ms Bligh said. In some further good news recently, there were some reports that increased planting by Victorian and Queensland grain farmers has set Australia up for a third consecutive bumper harvest which combined with the elevated prices on the back of a global supply crunch should provide another financial boost to the agriculture sector.
Globally, everyone is still trying to absorb the amazing confession by Treasury Secretary, Janet Yellen (former Chair of the Fed!) that she did not fully understand when she said last year that the inflation the economy was seeing was transitory. This is clearly a massive problem when the best minds in the world get this call wrong and not surprisingly, investors have lost their confidence in Central Bankers. Clearly the Fed has strongly changed its tune, and this week marked the official start of the Federal Reserve’s balance sheet shrinkage (which is a further tightening of monetary policy). The big question remains, what the runoff will mean for the economy and bringing inflation back under control. The Fed seems well-aware of this risk and the minutes from the May’s meeting showed that several policy makers noted the tightening of monetary policy plus the run off of the Fed’s balance sheet could interact with vulnerabilities related to the liquidity of markets for US Treasury Securities.
In some more positive news regarding oil supply – OPEC+ agreed to increase production faster in the summer months which should hopefully ease tight markets before the northern hemisphere July and August driving season. US President Biden is planning to visit Saudi Arabia in the hope of turning them towards an alliance in its campaign against Russia. (We of course all remember that Biden has stopped various US oil projects and stopped the building of oil pipelines not so long ago…) As we all know by now, extremely high energy prices are globally a major issue, and an additional spike would be placing additional pressure on 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.
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.
Copyright © 2022 Australian Bond Exchange Pty. Ltd. (“ABE”). ABE provides both general and specific financial product advice. Unless otherwise stated, any advice contained in this content is of general nature only and any information, advice or recommendation has been provided by ABE without taking account of your objectives, financial situation or needs. Because of this, you should before acting on any information, advice or recommendation from ABE consider the appropriateness of the information, advice or recommendation, having regard to your objectives, financial situation and needs. If this document, or any information, advice, or recommendation, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure document relating to the product and consider the document before making any decision about whether to acquire the product. ABE, its directors, representatives, employees, or related parties may have an interest in any companies or entities, or any financial product issued by companies and entities, and may earn revenue from the sale or purchase of any financial product, referred to in this document or in any information, advice, or recommendation. Neither ABE, nor any of its directors, representatives, employees, or agents, make any representation or warranty as to the reliability, accuracy, or completeness, of this document or any information, advice, or recommendation. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or any information, advice, or recommendation. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a “wholesale client” as that term is defined in the Corporations Act 2001 (Cth). ABE strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. ABE does not make a market in the securities or products that may be referred to in this document.