Australian Bond Exchange

Australian Bond Exchange Weekly Update

Friday 29th September 

Key Points 

  • Australian CPI rises again to 5.2% in August 
  • U.S. GDP grows in-line with expectations
  • Japanese inflation remains stable but elevated  
  • Oil makes fresh highs 
  • German consumer confidence ebbs  

Global Cash Rates & Inflation

Australian CPI rises again in August to 5.2%  

Australia’s monthly Consumer Price Index (CPI) indicator rose 5.2% in the 12 months to August 2023, according to the latest data from the Australian Bureau of Statistics (ABS). 

The increase follows an annual rate of 4.9% in July and is a stark reminder of the current volatility and unpredictability in global markets.  

Two of the largest contributors to the August annual increase were Transport (+7.4%) and Housing (+6.6%), spurred on by surging fuel costs and rising rents.  

Food and non-alcoholic beverages increased (+4.4%), and Insurance and financial services (+8.8%) were also significant contributors, underscoring that the skyrocketing price of oil isn’t the only factor feeding into inflation. 

While the inflation reading was largely expected, the data reaffirms that rates are likely to stay higher for longer, positioning fixed-income securities favourably amid an uncertain backdrop. 

U.S. GDP Increases Again  

The U.S. economy grew again in the second quarter by 2.1%, demonstrating continued resilience despite persistent inflation and a higher interest rate environment.

Given the U.S grew by 2.2% in the first quarter of 2023, the latest figures indicate that the economy is still running relatively hot, especially when compared to many other advanced economies.

Drilling further into the numbers however, consumer spending which is often touted as the growth engine of the U.S. economy is starting to taper, increasing by a modest 0.8% on an annualized basis, down from 1.7% in the previous estimate.

Stable but Elevated – Japanese Inflation Remains Above Target  

Japanese core CPI in August, which includes fuel costs, was up 3.1% year over year following a 3.1% increase in July year over year. While the inflation rate is broadly stable, it marks the 17th consecutive month where inflation has remained above the 2% target. 

The figures have prompted the Kishida Government to unveil a raft of new economic measures to help consumers with the cost-of-living pinch. 

Additional comments were also made by Finance Minister Suzuki in relation to the persistent volatility and weakness of the Japanese Yen, prompting speculation of a Bank of Japan intervention in currency markets. 

“We will respond as appropriate to excessive volatility without ruling out any options”  
Shunichi Suzuki, Japanese Finance Minister 

Oil Makes Fresh Highs 

Oil continues its upward trajectory, spurred on by production cuts from major producers like Saudi Arabia and Russia. The ‘supply shock’ is concerning policymakers across the globe and is stoking speculation that it will trigger more interest rate hikes. 

German Consumer Confidence Ebbs  

Consumer confidence in Europe’s largest economy continues to sag as inflationary pressures keep a lid on spending and private consumption. 

The GfK Institute’s consumer sentiment index fell to -26.5 heading into October from a slightly revised -25.6 in September.   

While the weak German consumer sentiment isn’t surprising nor an isolated case, it does serves as a sombre reminder about the fragility of the global economy. 

Final thoughts 

With inflationary pressures persisting, the ‘higher for longer’ narrative remains in full swing, and this will likely keep a lid on growth assets for the foreseeable future.  

Due to this uncertainty, we continue to believe that high quality, corporate fixed-income can deliver the stability and reliability which investors are searching for. 

What’s Coming Up?

  • RBA interest rate decision  
  • U.S. PMI data  
  • Australian balance of trade   
  • Eurozone inflation rate data 
  • Chinese PMI data  

*Data accurate as at 15.09.2023 

Disclaimer: This article has been prepared by Australian Bond Exchange Pty. Ltd (ACN 605 038 935, AFSL 484453) (“ABE”) and is of a general nature only. It was prepared without considering your financial needs, circumstances and objectives. Before investing in a fixed-interest product with ABE, you should consider whether it is appropriate for your circumstances and review the relevant terms and conditions. This article contains links to other third-party websites, some of which require a subscription to read. Such links are for your convenience only, and ABE does not recommend or endorse these third-party sites.. No representation or warranty is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions, or other information contained in the content. The content may contain certain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors, many of which are beyond our control. To the maximum extent permitted by law ABE disclaims all liability and responsibility for any direct or indirect loss or damage that you may suffer as a result of relying on anything in this content. Past performance is not an indication of future performance.