Australian Bond Exchange Weekly Update
16th August 2024
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 June is 3.8%.
- 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 2.9%.
- The Bank of England Bank Rate currently sits at 5.0%pa to fight an inflation rate of 2.2% in the year to July.
- 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 Wage Pressures Ease
Wage pressure in Australia shows continued signs of easing, increasing by 0.8% in the June quarter which was lower than 0.9% and 1% in the previous two quarters.
This moderation is undoubtedly good news for the RBA who will see this as a positive development in the overall fight to return inflation to target.
Not only will this help to alleviate cost pressures for Australian businesses – which have been failing at record rates – but it will also contribute to a more stable and normalised economic environment.
However, with unions and governments continuing to strike new pay deals for workers within various sectors, the risk of wage price reinflation remains possible.
Additionally, while the Australian labour market remains in robust shape, adding 58,000 jobs in July, the unemployment rate increased to 4.2%, the highest since January 2022.
This underscores the delicate balance which the Reserve Bank needs to strike, ensuring inflation remains curtailed but without slowing the economy too much.
U.S. Inflation Moderates
A slew of U.S. data this week reveals that the U.S. economy continues to cool, setting the scene for potential rate cuts in September.
Producer prices increased less than expected in July, climbing by just 0.1% which was below market expectations .
Additionally, consumer price inflation also came in less than expected, underscoring that U.S. monetary policy is working to take the heat out of the world’s largest economy.
While there is no guarantee that the Federal Reserve cuts in September, financial markets are currently ascribing a 52.5% chance of a 0.25 basis point cut.
Investors looking to increase or diversify exposure to corporate fixed-income should therefore remain cognisant that we may have reached peak rates.
New Zealand Slashes Rates
The Reserve Bank of New Zealand is the latest central bank to slash rates, lowering its Official Cash Rate by 0.25 basis points to 5.25% per annum.
The decision follows other central banks including the European Central Bank, Bank of England, Bank of Canada and many others.
U.K. Inflation Rebounds
Inflation in the U.K rebounded to 2.2% in July from 2% in June, however this was less than expected.
While a strengthening of the inflation rate is expected to continue in the short-term, the Bank of England believes it will cool further in 2025.
The U.K. economy grew by a meagre 0.6% in the June quarter, underscoring the persisting weakness and strengthening the potential for additional rate cuts.
Jaguar Land Rover Posts Record Breaking Revenue
Jaguar Land Rover (JLR) delivered its best Q1 revenue on record, delivering £7.3 billion for the quarter, up 5% year on year. Profit before tax and exceptional items (“PBT”) was up a significant 59% YoY to £693 million, while free cashflow was £230 million.
This record revenue underscores JLR’s strong market position which should provide investor’s confidence in the company’s credit quality and ability to service its debt.
We first gave investors access to JLR back in 2021, then again in 2023. This is a great result for them and underscores our commitment to identifying good investments which effectively balance risk vs reward.
For more information about our available fixed-income securities, contact us today.
Week Ahead
- RBA meeting minutes
- Federal Reserve meeting minutes
- Euro Area inflation data
- Japan inflation data
*Data accurate as at 16.08.2024
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