Central Banks – Cautiously Hawkish
Reserve Bank of Australia (RBA)
In-line with expectations the RBA left its cash rate unchanged at 4.1% on Tuesday, but added that “some further tightening of monetary policy may be required”.
We see room for one more hike by the end of the year, with interest rates remaining at elevated levels till the end of next year – very similar to here locally and in the US.
Australia’s economy rose +0.4% in the second quarter of 2023, ahead of expectations of a +0.3% quarterly uplift.
This was the seventh straight period of economic growth, amid positive contribution from net trade as exports (4.3%) rose more than imports (0.7%), and strong labour market outcomes from increased immigration.
If growth continues at that pace for another two quarters, the annual growth rate would barely reach 1.6%, an alarmingly low figure that.
For many Australians it probably feels like a recession, because all of the growth was accounted for by population growth, meaning gross domestic product (GDP) per person fell by -0.3% in both March and the June quarters, in a so-called “per capita recession”.
Bank of Canada
The Bank of Canada left its policy rate flat at 5%, but maintains a tightening bias as inflation and wage growth remains stubbornly high. Similar to the RBNZ and the Fed, the Bank of Canada have hiked aggressively 475 points of hikes since early 2022. Policy makers remain concerned about the persistence of underlying inflationary pressures and are ‘prepared to increase the policy rate further if needed.’
US
Strong economic data from the US overnight saw equity markets sell off (S&P 500 Index, -0.7%).
Recent readings on both the services and manufacturing sectors of the U.S. economy show that prices continue to increase – moving in the wrong direction and jumped to a 6-month high:
“The ISM reinforced all the concerns that have been bedeviling stocks for weeks – higher yields undercut stock valuations, robust growth [and] sticky inflation keep pressure on the Fed, healthy growth gives a further bid to oil”
The yield on the US 10-year Treasury note approached 4.3% in the first week of September as traders bet the Fed will keep interest rates high for a long period as the US economy continues to show signs of resilience.
The survey also revealed an increase in price pressures, which coupled with high oil prices raised further concerns about a rise in inflation. Meanwhile, Governor Wallace stated on Tuesday that the Fed can proceed carefully with rate hikes.
The Fed is expected to keep the fed funds rate steady this month while the odds for a quarter-point hike later in the year have been rising this week. They currently stand at 42% for November (vs 40% early in the week) and 43% for December (vs 37%).
E-Road, E-Gads, E-eek Shareholders of E-Road will be feeling a little irritated with management and perhaps wondering why they didn’t accept Constellation Software’s $1.30 per share offer, as the company announced a fresh $50mn capital raise — (1 for 2.06 pro rate at aprox. 70c for new shares). Likely due to the need to replace old 3G units + a bank facility rollover due 2026 (cynical viewers might see this whole thing as a poison pill to prevent takeover — “how you like them apples now?”) We have no view but are watching with interest.
Which side are you on? Union Membership vs. Share of National income earned by the top 10%