Australian Bond Exchange Weekly Update
Friday 29th September
- 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
- The Reserve Bank of Australia (RBA) Cash Rate remains unchanged at 4.1%pa
- The US cash rate (policy rate) is currently between 5.25-5.5%pa, and the annual inflation rate in the year to August is 3.7%, up 0.6% in August
- The Bank of England Bank Rate currently sits at 2.5%pa to fight an inflation rate of 6.7% in the year to August.
- The European Central Bank Cash Rate (deposit facility) is 4.00%pa, to fight an annual inflation rate of 2% in the year to August.
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.
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
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