Australian Bond Exchange Weekly Update
22nd November 2024
Key points
- RBA minutes highlight uncertain outlook
- Euro Area inflation rises to 2%
- UK inflation increase to 2.3%
- Geo-political tensions ratchet up
- Register for our upcoming Webinar
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 the September quarter is 2.8%.
● The US cash rate (policy rate) is currently between 4.50%-4.75pa and the annual inflation rate in the year to October is 2.6%.
● 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 3.25%pa, to fight an annual inflation rate of 2% in the year to October.
RBA Minutes Highlight Uncertain Outlook
The RBA released its latest meeting minutes this week, highlighting the ongoing concerns about the potential for inflation to exceed expectations.
Despite recent declines in headline inflation, driven in part by temporary factors such as electricity rebates and lower fuel prices, the RBA remains focused on underlying inflation pressures, which have proven more persistent.
From an international perspective, the minutes also cited China’s slowing economy as an ongoing risk but highlighted how recent stimulus measures could soften any economic implications for Australia.
Additionally, uncertainties about U.S. economic policy, including larger fiscal stimulus and trade tariffs, raise concerns about stoking global inflation with protectionist and inflationary effects.
Fixed-income investors should continue to remain cognisant of these risks and position their investment portfolios, accordingly, including retaining exposures to fixed, floating and inflation-linked debt securities.
Euro Area Inflation Rises to 2%
The annual rate of inflation in the Euro Area increased to 2% in October, up from 1.7% the month prior.
While the rise brings inflation in line with the European Central Bank’s (ECB) target, it also raises questions about how policymakers will respond.
The ECB has maintained that current inflationary pressures are largely transitory, although there are many domestic and international factors which could derail efforts undertaken so far including a deteriorating geo-political environment and uncertain U.S. economic policy.
UK Inflation Increases to 2.3%
Inflation in the UK bounced back in October to 2.3%, pushing the annual rate back above the Bank of England’s target.
This inflationary surge comes in the wake of two recent interest rate cuts by the Bank of England, aimed at stimulating economic growth amid concerns of slowing activity.
However, the unexpected resurgence of inflation could complicate the central bank’s strategy, as it now faces the dual challenge of supporting the economy while ensuring that inflation remains under control.
Geo-political Tensions Ratchet Up
Tensions between Western nations, Ukraine and Russia heightened this week following the Biden administration’s decision to greenlight the use of American missiles against Russia by Ukrainian forces.
Consequently, Russia has now updated its nuclear doctrine, lowering the threshold for deploying nuclear weapons – an alarming escalation in rhetoric and military posture which could lead to catastrophic consequences.
Despite this uncertainty, equity markets and other risk assets continue to trade at or near all-time highs, leaving investors who are heavily weighted to these asset classes exposed to potentially significant price volatility.
For this reason, we continue to advocate for well-balanced and diversified portfolios that include fixed-income assets, which can act as an important stabiliser in times of volatility, as part of the overall asset allocation mix.
For more information regarding our available securities, contact the Australian Bond Exchange today.
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Week Ahead
- FOMC minutes
- Australian monthly CPI data
- U.S. PCE inflation data
- Australian retail sales
*Data accurate as at 22.11.2024
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