Australian Bond Exchange Weekly Update
6th 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 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 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.
Anaemic Economic Growth
Australia’s economy grew by a meagre 0.2% in the June quarter, taking the annual rate to 1%, the lowest rate of growth since the 1990s, excluding the pandemic.
Despite being weak, Australia has so far managed to avoid a technical recession, primarily due to migration and government spending and consumption, which contributed 0.3% to GDP over the quarter.
By contrast, household spending fell by 0.2% for the quarter, underscoring persistent weakness in the consumer economy. In fact, both GDP per capita and consumer spending have fallen for 6 consecutive quarters.
As economic headwinds strengthen, it’s important to remain cognisant that weaker growth often translates to lower corporate earnings and the potential for lower dividends.
Not only were dividends paid out by ASX companies in the August reporting period the lowest since 2020, last week we also flagged the growing risk of private credit in Australia, where one of the world’s largest fixed-income asset managers warned of “an alarming rise in loan amendments and corporate restructuring”.
A key benefit of corporate fixed-income is that is provides investors with a greater degree of certainty given coupon payments are fixed obligations and the amount of the periodic payment is certain.
U.S. Job Openings Fall
American job openings fell to their lowest level since January 2021, the latest sign that the world’s largest economy continues to soften.
Federal Reserve Chairman Jerome Powell has signalled that strengthening the economy is now the primary focus, and the central bank is largely expected to slash its key interest rate later this month.
Oil Prices Move Lower
Global oil prices are steadily declining, indicating weaker demand and a slowdown in industrial activity.
Although lower fuel prices will be a relief for cash-strapped households, the ongoing drop in oil suggests that the global economy is continuing to lose momentum.
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 consumer and business confidence
- UK unemployment
- U.S. inflation data
- ECB interest rate decision
*Data accurate as at 06.09.2024
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