Australian Bond Exchange Weekly Update
Friday 20th October
- Australian consumer sentiment inches slightly higher
- U.S. inflation remains sticky at 3.7%
- Restrictive policy to remain in place: Federal Reserve
- Middle east uncertainty rattles markets but oil sells off
- IMF increases U.S, growth outlook forecast
- “Monetary policy slowing the growth of demand and inflation”: RBA’s Kent
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate remains unchanged at 4.1%pa and the annual inflation rate in the year to August is 5.2%.
- The US cash rate (policy rate) is currently between 5.25-5.5%pa, and the annual inflation rate in the year to September is 3.7%.
Can’t Stop, Won’t Stop – U.S. Retail Spending Shows No Sign of Slowing
Retail sales in the U.S. increased again in September for the sixth month in a row, providing further indication that the American consumer is still in relatively good shape despite higher interest rates and goods and services costs.
The headline sales figure increased 0.7% from the previous month and 3.8% from September 2022. Sales at miscellaneous store retailers recorded the biggest increase (3%), followed by non-store retailers (1.1%), motor vehicles and parts dealers (1%) and gasoline stations (0.9%).
Earlier this week, the Australian Bond Exchange announced the launch of its latest AUD denominated market-linked security offering for leading U.S. retailer, Macy’s Inc.
With a resilient U.S. economy and very strong trend growth in consumer spending, we’re excited to be able to offer this investment opportunity at an attractive a coupon of 7.25% per annum, paid quarterly over a 4-year term.
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Determined and Willing – RBA Minutes Reveal November Rate Hike Possible
Meeting minutes released this week reiterated the RBA Board’s determination to bring inflation under control.
The Bank stated that it had “a low tolerance for a slower return of inflation to target than currently expected” and once again warned that “further tightening of policy may be required”.
While the comments keep the possibility of another rate hike in November live, it will be highly dependent on incoming inflation data next week.
Regarding instability in the Middle East following the Hamas terrorist attack in Israel, the threat of higher oil prices was also discussed with the Board stating it was hindering progress on reducing headline inflation.
While the monthly CPI indicator increased in August, the RBA stated that it still expects headline inflation to decline over the second half of 2023.
Australian Jobs Market Remains Tight
The latest Australian employment figures reveal the jobless rate fell to 3.6% in the year to September, marking the lowest point since June at 3.5%. While many analysts expected the jobless rate to remain at 3.7%, the economy added just a modest 6,700 jobs in September with full-time employment falling by 39,900 people.
UK Inflation Holds Steady
Inflation in the UK remained steady at 6.7% in the 12 months to September with higher petrol and services prices keeping levels elevated. Food and non-alcoholic beverages were the largest downward contributors, but the effects were offset predominantly by rising fuel prices and services inflation.
The CPI including owner occupiers’ housing costs (CPIH) increased by 6.3% in the 12 months to September 2023 while the owner occupiers’ housing cost component (OOH) increased by 5% over the same period.
The reading was a disappointment for many economists who expected inflation to fall to 6.6%, underscoring how higher oil prices due to escalating Middle East tensions could derail central bank efforts to curtail inflation.
ABE attends KangaNews-Westpac Corporate Debt Summit 2023
ABE Co-Founders Bradley McCosker and Markus Mueller represented the firm at the KangaNews-Westpac Corporate Debt Summit alongside delegates from Westpac, Blackstone, Macquarie Asset Management, and more.
The Summit, which is Australia’s premier corporate debt market event, brought together issuers, institutional investors, and other market participants for networking and insightful discussion on the outlook of the economy and the asset class more broadly.
Westpac Group Chief Economist Lucy Ellis stated that inflation remained the big story and while it was unwinding, the demand side was still ‘too strong’. Broadly speaking however, things are on the right track despite energy costs remaining a ‘spin ball’.
On wages, the expectation is that they have now peaked which will compound the challenges facing family budgets which are coming under increasing pressure.
With restrictive monetary policy settings expected to remain in place for the foreseeable future, we continue to retain the view that high quality corporate fixed-income provides investors with superior risk-adjusted returns, relative to growth assets.
What’s Coming Up?
- Australian inflation
- European Central Bank interest rate decision
- A slew of U.S. GDP figures including GDP growth and PCE
- German consumer confidence
- UK unemployment
*Data accurate as at 13.10.2023
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