Economic and market news
The third consecutive 0.75 percentage point increase in official rates by the US Federal Reserve had a significant impact on markets this week. The policy change was supported by a downgrade in the Fed’s economic growth forecasts, with an associated expectation of consistently high inflation. At a press conference, the Fed Chair said it is ‘strongly committed’ to curbing inflation and returning it back to the 2 per cent target. This was taken by markets as flagging continued, and more significant than previously anticipated, policy tightening, even in the face of a slowing economy and rising unemployment.
In other important overseas economic news, the new UK Government issued a ‘mini-Budget’ which included significant tax cuts, both personal and corporate, and more stimulus spending and associated borrowing. This was in line with promises made by the new Prime Minister in her bid to get the top job. However, economists and markets reacted very negatively to the announcements. Commentators' key concerns centered on the likely ineffectiveness of the policies in spurring economic growth, the resulting size of the UK’s debt and its ability to service it as global interest rates rise, and the inflation impulse from the additional stimulus. In particular, it was noted that the Bank of England is attempting to ‘tap on the breaks’ of the economy to slow inflation, while fiscal policy while now be pushing firmly in the opposite direction. The uncertainty about the net outcome of the conflicting policy measures made markets across the world very nervous on Friday and into Monday, the UK currency fell below US$1.11 on Friday for the first time in 37 years, and then to record lows in Asian trading on Monday.
Meanwhile, the Bank of England raised its official policy rate by another 0.5 percentage points last week, to the highest level in 14 years.
In Australia, markets were unsettled by the policy and market movements overseas, with the ASX falling to a 3-month low at the open on Monday amid fears that weakness in the global economy means an increased risk of recession in Australia. Ahead of the next monetary policy decision by the Reserve Bank of Australia (next Tuesday), key commentators revised their expectations of the peak in official rates here to 3.6 per cent (from 3.1 per cent). Meanwhile, despite a downward revision to global growth forecasts, ratings agency Standard & Poor’s’ has reaffirmed Australia’s AAA sovereign credit rating.
Australian indices
ASX 200: Fell again this week, 4.56 per cent over the week, to 6496.2 points at the close on Tuesday.
All Ordinaries: Also fell again, 4.75 per cent in the past week, breaking the 7000 threshold and closing at 6696.5 points on Tuesday.
Government Bonds
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
2.75
|
98.92 |
3.43% |
-3 |
+51 |
+346 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
4.75 |
103.93 |
3.79% |
-2 |
+49 |
+307 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.25 |
78.01 |
4.02% |
+4 |
+45 |
+261 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.75 |
95.50 |
4.14% |
+2 |
+38 |
+234 |
Reserve Bank of Australia (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) |
|
2.35 |
+0.50 (6 September 22) |
+0.5 (6 September 22) |
0.10 |
Currencies(source:RBA)
As at the close on 27 September, the AUD/USD was down again, 3.26 per cent, on last week, at 0.6501. The AUD/RMB was down 1.26 per cent, in the week to 4.6526.
Commodities
Fallout from evolving expectations about global recession and the trajectory of monetary policy has reportedly also impacted commodities markets. Metals, minerals and oil were all said to be extending their falls amid fears of weakening demand.
Venture capital
Company updates
Cardihab
Stoic investee Cardihab announced a new partnership with the Atrial Fibrillation Institute Queensland Cardiovascular Group,aimed at improving health outcomes for patients with the condition.
ENA Respiratory
Stoic investee ENA Respiratory was invited topresent to the US Bipartisan Commission on Biodefense on pandemic preparedness.
Wildlife Drones
Stoic investee Wildlife Drones announced an exciting new partnership with Freefly Systems.
Morse Micro
Stoic investee Morse Micro announced that it has obtained FCC certification for its WiFi HaLow technology.
Property
There was discussion innational media about the worsening crisis in the property rental market, particularly in the face of renewed immigration, and measures that could be taken to make things better.
