Australian Bond Exchange

Australian Bond Exchange Weekly Update

5th July 2024  

Key points

  • Aussie inflation increases to 4% in May
  • Skyrocketing – house prices hit record high
  • Retail sales rebound
  • “Price pressures diminishing” – Federal Reserve
  • What’s next for the UK economy?

Global Cash Rates & Inflation 

Aussie inflation increases to 4% in May

The monthly CPI indicator increased to 4% in May, overshooting analyst forecasts of a 3.8% rise which has further stoked concerns that the RBA will need to lift the cash rate at least once more.

The inflation rate is now the highest it has been since November 2023 with the price of electricity, housing, automotive fuel and transport contributing significantly to the increase.

While the possibility of further rate increases will be a sobering thought for cash-strapped borrowers and under-pressure businesses, it strengthens the case for lenders or fixed-income investing where rates are likely to remain attractive for the foreseeable future.

Skyrocketing –House Prices Hit Record High

Australia’s median home value climbed to a fresh high of $787,000 in June as prices nationally increased by 6.55% over the past year.

The largest annual rate of growth was seen in Perth (22.52%), followed by regional Western Australia (16.27%) and Adelaide (14.61%).   

While Sydney saw a relatively modest 6.39% growth rate, the median value of a home is now $1.1 million.

The continued rise of house prices in Australia comes amid a housing supply shortage and record-high migration numbers.

Newly released data suggests that the Australian property market nationally will increase by 2 – 4% in the 2024-2025 financial year.

Retail Sales Rebound

Australian retail sales increased by 0.6% for the month of May, following a 0.1% increase in April and beating analyst expectations of a 0.3% increase.

The unexpected upside surprise has been largely attributed to end-of-financial-year sales, underscoring the price-sensitivity of Australian consumers.

Consumer sentiment remains in the doldrums with Westpac’s Australian consumer confidence index remaining in deeply negative territory despite seeing a modest uplift in June.

Price pressures diminishing” – Federal Reserve

Meeting minutes released by the Federal Reserve reveal that U.S. rate-setters are seeing a continued easing of price pressures in the economy with “inflation moving sustainably” however, the Fed still wants to see additional information “to provide greater confidence”.

Last month both the European Central Bank and Bank of Canada slashed interest rates and the Bank of England is also expected to cut soon.

What’s Next for the UK economy?

With the British Conservative Party likely to be ejected from power after 14 years at the helm, this would result in the UK embarking on a new journey under the stewardship of Sir Keir Starmer’s Labour Party.

While Labour has stated its commitment to following UK fiscal rules (which enshrine fiscal prudence), comprehensive details of Labour’s economic policies won’t be known until an official budget is presented, likely not until mid-September.

Final Thoughts

With election uncertainty rippling across global financial markets, as we’ve seen recently in France, the importance of maintaining a diversified and well-balanced portfolio is paramount.

While the trajectory of rates in Australia is somewhat uncertain compared to other advanced economies in Europe and the U.S., our view is that fixed-income remains a highly attractive investment option for investors looking for consistent and stable returns.

Week Ahead

  • U.S. inflation
  • Westpac consumer confidence
  • NAB business confidence
  • China GDP

*Data accurate as at 05.07.2024

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