Australian Bond Exchange Weekly Update
2nd September 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 July is 3.5%.
- The US cash rate (policy rate) is currently between 5.25%-5.5%pa and the annual inflation rate in the year to July 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.
Australian Inflation Eases
Australia’s annual headline inflation rate dropped to 3.5% in July, down from 3.8% in June and 4% in May.
The decline is largely attributed to federal and state energy rebates, which drove national energy prices down by 6.4% in July instead of the expected 0.9% increase.
Despite this, inflationary pressures persist in areas like housing, with rents up 6.9% and new home construction costs rising 5% year-on-year.
The RBA has said it doesn’t expect to cut rates at all this year, however financial markets are pricing in one cut.
ASX Shares Diverge on Price and Earnings
New data released by JP Morgan shows that ASX shares are the most expensive they’ve been since the COVID-19 pandemic, highlighting a growing divergence between lacklustre earnings (in many cases) but continued share price appreciation.
The report also mentioned that approximately 40% of companies issued earnings downgrades, highlighting the challenging operating environment for many businesses.
This market dynamic creates a favourable environment for corporate bonds, as investors may seek more stable and predictable returns amidst the uncertainty in equities.
Earlier this month we witnessed the carnage unleashed by the Bank of Japan with its surprise decision to hike interest rates, prompting a spectacular response from investors.
While corporate bond markets experienced some volatility, equities plunged aggressively as illustrated by comparing the price performance of the S&P500 Investment Grade Corporate Bond Index with the S&P500 stock index.
ABE Monthly Webinar Update
In our latest monthly webinar for August, ABE spoke with Mark O’Leary, Managing Director of Strategic Partnerships and Blair Dewhurst, Senior Investment Advisor, to discuss the latest economic developments, their implications for the trajectory of interest rates, and our available fixed-income offerings.
Week Ahead
- Australian GDP
- US jobs data
- Chinese inflation
*Data accurate as at 30.08.2024
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