AUSTRALIAN MARKET WRAP
The Reserve Bank of Australia yesterday decided to raise the official interest rate by 0.25 percentage points to 2.85 per cent. This was in-line with market expectations. The Governor’s statement suggested that its new forecasts (to be published on Friday) will show that inflation is now expected to peak at 8 per cent this year, higher than the Australian Government’s forecasts in its Budget last week (7.75 per cent). The Bank’s forecasts for GDP have been revised down, with growth now expected to be around 3 per cent this year, and 1½ per cent in 2023 and 2024. It was noted that, despite the downgrades, the economy is still growing strongly, boosted by record terms of trade. A tight labour market, with unemployment still near 50 year lows is also supporting the economy.
New data out ahead of the Reserve Bank’s interest rate decision show that inflation was higher than expected in the September quarter, at 1.8 per cent. This result pushed the annual rate to a 32 year high of 7.3 per cent. The Reserve Bank’s preferred, underlying, inflation figure strips out large movements and volatile prices, and was 1.8 per cent in the quarter and 6.1 per cent over the year.
In overseas economic news, the European Central Bank announced its second consecutive three-quarter-point increase in official interest rates. This doubled it, to the highest level in more than a decade. The decision brings the deposit rate, which was below zero as recently as July, to 1.5 per cent. Commentators suggested that, in continuing with large increases, even as energy market turmoil batters the 19-nation eurozone economy, the ECB reaffirmed its commitment to dampening inflation that has surged to five times the 2 per cent target; central bank credibility has been proven to be important in re-anchoring inflation expectations and thus regaining control of prices.
Alongside this, stronger-than-expected inflation outturns were this week reported in key countries in the eurozone. Record inflation is being seen in Germany, France, and Italy, with figures due next week expected to show an all-time inflation high of 10.3 per cent for the eurozone as a whole.
Australian indices
ASX 200: Rose 2.62 per cent over the week, to 6976.9 points at the close on Tuesday.
All Ordinaries: Rose 2.52 per cent in the past week, closing at 7169.6 points on Tuesday.
Currencies
As at the close on 1 November, AUD/USD had risen 1.55 per cent on last week, to 0.6423. The AUD/RMB also rose, 1.54 per cent, in the week to 4.6923.
Commodities
It was reported that the iron ore price has fallen to its lowest in over two years, halving since its peak in March. Concerns about weakness in global steel demand, as economic conditions deteriorate and China’s property market downturn is prolonged by COVID restictions, dovetailed with strengthening in supply, are said to be behind the price falls.
Government Bonds
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
0.25
|
94.21 |
3.18% |
-4 |
-12 |
+248 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
2.75 |
96.91 |
3.41% |
-3 |
-24 |
+206 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.75 |
83.29 |
3.76% |
+1 |
-12 |
+186 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.25 |
89.96 |
4.06% |
+4 |
+3 |
+184 |
Reserve Bank of Australia Rates (Source:RBA)
|
RBA CASH RATE TARGET (RBATCTR:IND) CURRENT (per cent) |
MOST RECENT DECISION (percentage points) |
MOST RECENT CHANGE (percentage points) |
1 YEAR PRIOR (per cent) |
|
2.85 |
+0.25 (1 November 22) |
+0.25 (1 November 22) |
0.10 |
Property
It was reported that new data show that Australian capital cities experienced the sharpest ever decline in house prices across the country’s biggest capital cities during the September quarter. The impact of the (then) six interest rate increases and high inflation saw east coast capitals experience housing price falls in the region of 5 per cent. However, it was noted that there are signs house values have passed their worst as the pace of interest rate increases slowed October and consumer sentiment lifted from its lows.
Aligned with this, it was reported that auction clearance rates have dipped below 60 per cent for the first time since August. The volume of listings has also apparently fallen.
Venture capital
In further evidence of the change in economic climate and investor sentiment, The Washington Post discussed recent raisings in Silicon Valley, and how the Unicorn (startups valued at $1 billion) is becoming rarer, and looks at the consequences of that.
Forcite
In exciting news for Stoic investee Forcite, the world's most popular motorcycle YouTuber ‘Fortnine’ judged all smart helmets dumb, apart from one…
Morse Micro
CEO of Stoic investee Morse Micro, Michael De Nil, talked about his view on the next step on the company’s journey toward market scale, and leadership for WiFi HaLow and the Internet of Things.
