Monthly Insights BY THE CURVE TEAM –

With over 100 years of collective financial markets experience behind us, we have created Curve’s monthly insights, highlighting important global economic data and providing in-depth analysis to help you better understand the current economic climate.

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RBA, APRA and Regulatory Impacts

RBA Recap

  • QE was extended to February at the rate of $4 billion of purchases a week
  • The August meeting minutes acknowledged the limited benefit of further monetary policy easing during lockdowns. This signals the RBA will likely maintain or reduce further QE purchases rather than increasing them.

Markets Recap

  • APRA ended the use of the CLF by the end of 2022, which will have implications for bond yields.
  • There were a range of primary bond issues over the month, including by a major bank, regional bank and semi government entity.

Investing Considerations

  • The CLF changes will put downward pressure on government bond yields over 2022 even as QE is tapered and should increase yields on non-government bonds.
  • Dollar Cost Averaging, and Averaging In are strategies to consider in a rising interest rate environment.

Australian Economy

  • However the impact of lockdowns is showing up in more recent data points with business and consumer confidence down along with retail sales.
  • Data over the last month continued to paint the picture of an economy doing well ahead of lockdowns with GDP coming in ahead of expectations and employment holding up well.

Updated RBA Forecasts and Barbell Investing

  • The RBA will proceed with tapering QE, which had implications for cash rate futures. 
  • The quarterly Statement on Monetary Policy contained updated economic forecasts. 
  • Barbell investing is a relevant consideration given the current market.
  • Lockdowns weigh on the economy.

Employment Outcomes Key to Rate Hike Timing

  • Governor Lowe had a busy week following the decision on yield curve control (YCC) and quantitative easing (QE), articulating the reasons behind their decision and delivering a speech on the employment outlook.
  • He made it abundantly clear that employment outcomes hold the key to the outlook for monetary policy.
  • How quickly Australia gets covid under control and what that means for international border policy will prove pivotal to employment outcomes.
  • While the 2024 timeline for rate hikes is still the central scenario it is not set in stone according to the Governor.

Inflation: Transient or Persistent

  • It is uncertain how sticky rising prices will prove to be. The different forces driving higher prices are relevant to determine whether it will be transitory.
  • Supply side price pressures could prove both temporary and ongoing.
  • Demand side price pressures are contingent on wage growth over the medium to long term.
  • Wages remain the dominant factor that will determine the RBA’s decision on monetary policy.
  • Central Banks will face a challenge if prices rise before wages increase.

Hot Economy Prompts Forecast Upgrades

  • Economic indicators suggest the economy remains resurgent, which will quell the impact of the end of JobKeeper and HomeBuilder.
  • Employment numbers indicate that employers have transitioned the bulk of workers receiving JobKeeper either into part time work or have let them go.
  • Investor activity should keep housing related activity strong.
  • The RBA updated their economic forecasts in the Statement on Monetary Policy for May.
  • While the employment was significantly improved, the upgrades to growth and inflation were more muted.

Optimism Dominates the Outlook

  • Two key government programs – JobKeeper and HomeBuilder ended as of March 31.
  • The economy is expected to hold up in spite of this.
  • Employment in particular continues to overdeliver, with the economy having regained all the jobs lost during Covid.
  • Other variables, namely dwelling approvals and lending may face headwinds ahead.
  • More consequential will be where these levels normalise, as this will indicate what economic activity is sustainable.