Australian Bond Exchange Weekly Update
13th December 2024
Key points
- U.S. inflation rises in-line with forecasts
- China gets serious on stimulus
- OPEC cuts oil output
- ECB, BoC and Swiss National Bank slash rates
- RBA – a dovish pivot
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to October is 2.1%.
- The US cash rate (policy rate) is currently between 4.50%-4.75%pa and the annual inflation rate in the year to November is 2.7%.
- The Bank of England Bank Rate currently sits at 4.75%pa to fight an inflation rate of 2.3% in the year to October.
- The European Central Bank Cash Rate (deposit facility) is 3.0%pa, to fight an annual inflation rate of 2.3% in the year to November.
US Inflation Rises In-line With Forecasts
The Federal Reserve is expected to cut rates again next week, with consumer prices rising in-line with expectations.
Prices climbed 2.7% year-over-year in November, up slightly from 2.6% in October, driven by higher used car and hotel room prices, according to the Bureau of Labor Statistics.
Core inflation, which excludes food and energy, remained unchanged at 3.3%.
China Gets Serious on Stimulus
China made headlines this week with its politburo stating the government would embrace a looser monetary policy next year, suggesting that policymakers are becoming increasingly concerned about the economic outlook.
The world’s second-largest economy has been struggling with deflationary pressures, a protracted housing downturn, and subdued consumer spending.
As Australia’s largest trading partner, the announcement is significant and will likely have a positive impact on Australian exports, especially iron ore.
New AUD Investment Opportunity
Against this backdrop, ABE is introducing a new investment opportunity offering exposure to diverse Australian commodities-related businesses.
This opportunity aims to capitalize on evolving market dynamics and offers an attractive return of 7.5%–8.0% p.a. over a 4–5 year period*, providing exposure to sectors poised to benefit from shifts in global economic policies.
OPEC Cuts Oil Output
OPEC has announced it will cut oil production again in a bid to stabilise the price of oil which has fallen significantly this year. This has been driven by a combination of factors, including slowing economic growth in key markets, weaker-than-expected energy demand, and a surplus in global oil inventories.
While the implications of OPEC’s recent decision to cut oil production are still unfolding, one potential consequence is heightened inflationary pressure.
As oil, gas, and other energy resources are integral to modern economies, higher energy input costs could ripple through supply chains, increasing production costs for businesses.
ECB, BoC and Swiss National Bank Slash Rates
The European Central Bank (ECB), Bank of Canada (BoC), and Swiss National Bank (SNB) all took decisive action this week, significantly cutting their benchmark interest rates.
These moves reflect a growing trend of monetary policy easing across developed economies as central banks respond to a challenging economic landscape marked by sluggish growth and shifting global trade dynamics.
The SNB policy rate now sits at just 0.5%pa, while the ECB deposit rate and Bank of Canada rates sit at 3%pa and 3.25%pa respectively.
For investors, these rate cuts highlight the risk of hiding in cash, which is often perceived as a safe haven but will likely offer diminishing returns over time.
RBA – A Dovish Pivot
The RBA held the cash rate steady at 4.35%pa on Tuesday but signalled that it was confident that inflation was falling towards its target band.
Importantly, the central bank’s statement removed the longstanding threat that it was “not ruling anything in or out” when it came to another rate rise.
While Governor Bullock maintained the view that she will be data-driven, the shift in sentiment has been perceived as dovish and could result in an earlier-than-expected rate cut.
Cash rate futures now imply that the RBA could slash rates as early as February next year.
Week Ahead
- Federal Reserve rate decision
- Bank of Japan rate decision
- Bank of England rate decision
- Australian consumer confidence
*Data accurate as at 13.12.2024
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