Australian Bond Exchange Weekly Update
12th July 2024
Key points
- Aussie consumer confidence slides lower
- Business confidence rises
- Deflationary pressures persist in China
- U.S. inflation shows further easing
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 May.
- The European Central Bank Cash Rate (deposit facility) is 3.75%pa, to fight an annual inflation rate of 2.6% in the year to May.
Aussie Consumer Confidence Slides Lower
New data shows that Australian consumers continue to feel significant pain as persistently higher inflation and borrowing costs erode household balance sheets.
The Westpac-Melbourne Institute’s Consumer Sentiment Index dipped 1.1% to 82.7 points in July and remains within deeply negative territory.
While there were some modest gains in unemployment expectations and economic outlook expectations over the next 12 months and 5 years, the family finances sub-index fell significantly by 8.4%.
Additionally, expectations for a further rate hike sharply increased by 12.8% in July.
The data shows that while consumers expect the medium-term outlook for the economy to improve, significant pain is being felt now and could potentially worsen if further rate hikes.
Deflationary Pressures Persist in China
Chinese consumer inflation increased by a modest 0.2% in June, missing analyst expectations of 0.4% and underscoring the challenges facing the world’s second largest economy including weak consumption, a wobbly housing market, and job insecurity.
U.S. Inflation Shows Further Easing
The annual rate of consumer inflation in the U.S. fell to 3%, down from 3.3% in May and beating expectations of a 3.1% increase.
The data indicates that the U.S. inflation is on the right path and comes as Federal Reserve Chairman Jerome Powell testified on Capitol Hill, proclaiming that the U.S. economy was “no longer overheated” and that holding rates for too long could jeopardise economic growth.
While concerns in the U.S. over the ‘last mile of inflation’ have been growing, this latest data suggests that the overall trend of disinflation remains in-tact.
Final Thoughts
While the prospect of an additional rate hike in Australia seems plausible, most advanced economies including the U.S. Europe, and the United Kingdom are pivoting to rate cuts (or are considering them).
For fixed-income investors, this presents a unique opportunity to lock in a desirable rate now before any reversal of rate cuts occur in Australia.
Before You Go…
Earlier this week we announced the launch of our latest credit-linked security for Xerox Corporation, a U.S. Fortune 500 corporation that specialises in workplace technology and digital documentation services.
This investment opportunity offers an attractive return between 7.5 – 8.0%* per annum paid quarterly over a 5-year term. *(Exact return to be confirmed based on the market at time of issue)
For more information, speak to the Australian Bond Exchange today.
Week Ahead
- ECB interest rate decision
- U.S. retail sales
- China GDP growth rate
- UK inflation data
*Data accurate as at 12.07.2024
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