Australian Bond Exchange

Australian Bond Exchange Weekly Update

19th April 2024

Key points 

  • Australian unemployment inches higher but remains low
  • China GDP beats expectations
  • Spending Spree: U.S. retail sales surge
  • UK inflation rate slows
  • Corporate debt issuance remains strong

Global Cash Rates & Inflation 

Australian Unemployment Inches Higher But Remains Low

The Australian unemployment rate increased to 3.8% in March, up from 3.7% in February and beating expectations of a rise to 3.9%.

While the annual rate increased, unemployment remains very low overall and is indicative that the Australian economy remains strong despite high inflation and slowing GDP growth.

The weaker than expected unemployment data will undoubtedly feed into the Reserve Bank of Australia’s decision making at its next monetary policy meeting and could provide further impetus for delayed rate cuts.

China GDP Beats Expectations

The world’s second-largest economy saw its first quarter GDP growth increase by 5.3%, beating analyst expectations of 5.0% and providing some consolation that the Chinese economy might not be struggling as much as previously thought.

However, it’s worth noting that the GDP data was accompanied by a slew of other releases including retail sales and industrial production, both which missed expectations.

China has been struggling with persistently weak GDP growth, high unemployment, and a slumping real estate sector, prompting ratings house Fitch to cut its outlook on China’s sovereign credit rating last week to negative.

Alex Bazar

Spending Spree: U.S. Retail Sales Surge

The latest retail sales data from the U.S. reveals that the American consumer remains in good shape despite higher inflation and borrowing costs.

On a monthly basis, retail sales increased by 0.7% in March, exceeding expectations of a 0.3% increase. Total sales for the January 2024 through March 2024 period were up 2.1%.

Consumer spending accounts for approximately two-thirds of economic growth. Spending has remained solid, even in the face of still-high inflation and elevated interest rates. 

Jobs growth has expanded for 39 straight months while the unemployment rate has been below 4% for more than a year. 

With the economy continuing to demonstrate strength while persistent inflation remains above the Federal Reserve’s 2% target, financial markets and economists have slashed their rate cut expectations – and it seems likely that the latest retail sales will further reinforce this view. 

UK Inflation Rate Slows  

The annual rate of inflation in the United Kingdom slowed to 3.2% in March, down from 3.4% in February but missing expectations of 3.1%. 

The largest contributor to downward pressure on inflation was food, but this was offset by increases in various other categories including motor fuels and housing.   

Core inflation, which excludes both food and energy, fell to 4.2% from 4.5%.  

While inflation in the UK continues to ease, concerns are growing over the slowing rate of easing.  

This so called ‘last mile’ of inflation is proving to be a challenge for central bankers which has caused financial markets and economists to reassess the likelihood of early rate cuts as a result. 

Corporate Debt Issuance Remains Strong 

Australian corporates continue to tap the local fixed-income market for funding, demonstrating that both demand and activity remains strong. 

This week, Suncorp launched its Capital Notes 5 offer to raise approximately $300 million, while Sydney Airport issued a 10-year senior secured fixed-rate bond, raising $850 million. 

With the possibility of interest rates moving lower towards the end of this year, it’s clear that the demand to lock in yields has seen a significant inflow into the corporate fixed-income asset class.  

Final Thoughts 

While inflation continues to ease across many economies, the risks of reinflation remain a possibility, especially with geo-political instability rising.  

Just last week, the International Monetary Fund (IMF) warned that a resurgence of inflation could force investors to dump rate cut bets and cause a widespread sell-off in global asset markets.  

For more information about our available fixed-income securities, including inflation-linked bonds, please contact an ABE adviser today.  

Week Ahead

  • Australian inflation  
  • Bank of Japan rate decision 
  • U.S. core PCE  

*Data accurate as at 12.04.2024

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