Week in review
- RBA raises interest rates to 3.85%
- Federal Reserve raises interest rates to 5.25%
- China PMI manufacturing slips below 50 to 49.5
Week ahead
- Australia business and consumer confidence
- U.S. CPI inflation
- Australia retail sales
Thought of the week
Are we done? Both the RBA and U.S. Federal Reserve hiked interest rates by 25bps last week and both central banks changed the narrative to one that was slightly more dovish when it comes to further hikes. We think this should mark the peak in interest rates in both counties, however, the bias remains for another hike should the economic data not play ball in the coming months. In the U.S., the risks to growth have increased as the economy expanded by a much smaller than expected 1.1% annualized in the March quarter. Meanwhile, the continued fallout in regional banks and the slowing provision of credit adds to the downside risk. In Australia, the disinflationary pressures are not as strong but there is evidence of a downshift in economic momentum as the consumer feels the squeeze of higher rates and the rollover of fixed-term mortgages starts to increase from the middle of the year. To be certain that the RBA or the Fed are not tempted to squeeze in another hike there needs to be further evidence of disinflationary pressures as well as a softening in the labour market. Until then the central bankers will want to retain their ‘optionality’ to move on rates.
Central bankers are closing in on peak rates
Expected policy rate at end of 3Q 2023 vs today
Source: J.P. Morgan Asset Management.
Data reflect most recently available as of 05/05/23.
All returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.
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