Australian Bond Exchange

Australian Bond Exchange Weekly Update

Friday 17th November 

Key Points 

  • U.S. inflation falls more than expected to 3.2%
  • Australian unemployment and jobs increases in October
  • Australian consumer confidence evaporates
  • Business conditions up, confidence down – NAB Monthly Business Survey  
  • U.S. retail sales slide lower
  • U.S. small business optimism down in October
  • U.K inflation continues to ease – drops 4.6%

Global Cash Rates & Inflation

U.S. Inflation Falls More Than Expected to 3.2%

U.S. inflation as measured by the Consumer Price Index (CPI) fell more than expected to 3.2% in the year to October, beating a 3.7% expectation and marking the first decline in four months.

On a monthly basis, the CPI was flat which was less than expectations of a 0.1% increase, pointing towards an easing of conditions in the world’s largest economy.

Core inflation for the year to date was 4% versus expectations of 4.1% while Core CPI for the month increased by 0.2%.

In addition to tighter monetary conditions which continue to work their way through the economy, lower gasoline prices and a slowing in housing costs were also attributed to the fall.

Australian Unemployment and Jobs Increase in October

The unemployment rate increased to 3.7% in October while employers added a net 54,900 jobs, following a weak September with just 8,000 jobs created. The RBA is forecasting the unemployment rate to slowly rise to 3.8 per cent by year’s end and to 4.2 per cent by the end of 2024.

“Looking over the past two months, these increases equate to average employment growth of around 31,000 people a month, which is slightly lower than the average growth of 35,000 people a month since October 2022.”

Bjorn Jarvis, Head of Labour Statistics at the Australian Bureau of Statistics

Australian Consumer Confidence Evaporates

Australian consumer confidence soured again in November following yet another rate hike from the RBA last week. The index fell 2.6% to 79.9, returning consumer sentiment to ‘deeply pessimistic levels’ and almost the lowest since the COVID-19 pandemic.

According to the survey, “pessimism is having a major bearing on spending attitude” and the responses point to another “penny pinching Christmas”.

Component sub-indexes reveal that family finances were the most pessimistic segment, down 3.7% from the year prior.

Business Conditions Up, Confidence Down – NAB Monthly Business Survey

Survey findings from NAB reveal that business conditions slightly increased by 1 point to 13 index points, trading conditions increased 2 points to 20 index points, and profitability was up 3 points to 12 index points.

Business confidence was less optimistic however with the Index falling from 0 to -2. In trend terms, the only sectors which remain in positive territory are transport & utilities, construction, and manufacturing.

Forward orders also revealed weakness with wholesale and manufacturing orders easing, and retail orders remaining in the negative.

Overall, the survey indicates that the Australian economy remains resilient despite the various challenges including high input costs and higher debt servicing requirements.

U.S. Retail Sales Slide Lower

Retail sales figures in the U.S. slid lower by 0.1% in October, the first time since March this year.

While the decline was less than expected, it provides some indication that U.S. consumers could be starting to tighten the purse strings with interest rates sitting at a 22-year high. Month over month, the components which fell the most were furniture sales (-2%) and car sales (1.1%).

Consumers are currently facing headwinds from the double whammy of higher borrowing costs and persistent inflation which is increasingly expected to weigh on end-of-year spending.

U.S. Small Business Optimism Falls for Third Consecutive Month

The National Federation of Independent Businesses (NFIB) Small Business Optimism Index fell in October to 90.7, narrowly beating analyst expectations of 90.5.

It is the third consecutive monthly decline with the data revealing that poor labour availability was the primary concern, although lower earnings, reduced credit availability and ongoing cost pressures were also key factors causing the increased levels of pessimism.

U.K Inflation Continues to Ease – Drops 4.6%

Inflation in the U.K. fell significantly from 6.7% in September to 4.6% in October as energy prices continue to subside. The decline is the largest on record since 1992 and is indicative that the Bank of England’s 14 rate hikes is working to help take the heat out of the economy.

Final Thoughts

While the global economy appears to be holding up relatively well, it’s clear that the outlook remains uncertain as higher interest rates and persistent, (albeit weakening) inflation weigh on optimism.

In such conditions, our view is that the opportunity set offered by corporate fixed-income is uniquely placed to deliver ongoing and stable returns in a higher for longer environment.

Just this week, ABE investors in MA Financial received their first coupon payment which is returning 8.0% p.a.

MA Financial Group is an ASX-listed (ASX:MAF) leading diversified financial services firm specialising in alternative assets, lending, corporate advisory, and equities.

Since its launch in 2009, they have advised on over $100 billion of transactions, raised $13.9 billion in equity capital for their client, and hold $8.4 billion in assets under management.

Week Ahead 

  • FOMC and RBA meeting minutes released
  • RBA Governor Bullock speech
  • Japanese and Canadian inflation figures
  • UK Autumn Statement
  • Australian Flash PMI

*Data accurate as at 17.11.2023 

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