Australian Bond Exchange Weekly Update
19th July 2024
Key points
- Aussie jobs data sharpens prospect of another rate hike
- The China slowdown continues
- European Central Bank holds rates steady
- UK inflation flat at 2%
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 May is 4.0%.
- The US cash rate (policy rate) is currently between 5.25%-5.5%pa and the annual inflation rate in the year to June is 3.0%.
- The Bank of England Bank Rate currently sits at 5.25%pa to fight an inflation rate of 2.0% in the year to June
- The European Central Bank Cash Rate (deposit facility) is 3.75%pa, to fight an annual inflation rate of 2.5% in the year to June.
Aussie Jobs Data Sharpens Prospect of Another Rate Hike
Australia’s economy added over 50,000 jobs in June which was significantly more than the expected 20,000.The data underscores that despite higher interest rates and weaker economic growth, the Australian jobs market remains in robust shape.
While this might sound like good news, it likely adds further impetus for the RBA to hike the cash rate once again as inflationary pressure remains uncomfortably strong.
The next quarterly inflation data is scheduled for release on 31st July and can be seen as the final determining factor as to whether we see another hike.
The China Slowdown Continues
Chinese GDP growth came in weaker than expected, growing 4.7% during the second quarter of 2024 and missing analyst forecasts of 5.1%
Growth was subdued due to softer domestic consumption and an ongoing property downturn which is seeing dwelling prices fall at their fastest pace in 9 years.
China’s flailing economy was undoubtedly a key concern for Xi Jinping as he commenced the Chinese Communist Party’s third plenum, a closed-door assembly to discuss the future outlook of the economy.
European Central Bank Holds Rates Steady
The European Central Bank (ECB) held its deposit facility rate steady at 3.75%pa as it continues to assess the impacts of last month’s rate cut.
Inflation in the Euro Area has fallen significantly from a high of 10.6% in October 2022 to 2.5% last month but has largely flatlined for most of 2024.
Economic growth has also been weak with the economy slipping briefly into a technical recession in 2023.
It is largely expected that the ECB will cut rates twice more this year.
UK Inflation Holds at 2%
Consumer price data revealed that UK inflation held steady at 2% for June and was marginally higher than analyst expectations of 1.9%.
While the result might be slightly disappointing and could delay the arrival of rate cuts (which have been touted to come in August), it’s important to remember that UK inflation has eased meaningfully, falling from 11.1% in October 2022.
Like most advanced economies however, the trend of disinflation remains in-tact, and the UK is expected to be one of the next major economies to pivot to monetary easing.
Final Thoughts
Despite the prospect of another rate hike growing in Australia, the global trend of rate cuts is gaining momentum.
Whether we see the RBA pull the trigger or not, it seems possible that we have reached the end of this tightening cycle in most jurisdictions.
As such, we think the returns which are currently available in the corporate fixed-income market look undeniably compelling.
On that note, just this week we launched our latest fixed-income security offering with an attractive return of 7.86%* per annum paid quarterly over a 5-year term.
For more information, speak to the Australian Bond Exchange today.
Week Ahead
- U.S. PCE price index
- U.S. GDP growth
- Bank of Canada interest rate decision
- Australian manufacturing PMI
*Data accurate as at 19.07.2024
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