Australian monthly inflation figures were released this morning and showed a jump in annual inflation to 3.8% from 3.6%. The largest contributor was housing at a significant 5.9% followed by food and alcoholic beverages at 3.2%. This is too high and will push back any hope of a further rate cut. The current 3.6% cash rate may not be restrictive enough. If these rates persist, the next move could be a hike.
It’s worth noting, the ABS has been transitioning to monthly inflation reports, and this figure is the first in the series, so unlike other monthly announcements, there is no reason to make allowances for different measures compared to the previous quarterly data.
Shifting to the US, who are on a different path, there’s uncertainty about the US Fed’s next interest rate move at its meeting on 9-10 December. A lack of data due to the US shutdown means there’s plenty of uncertainty.
A cooling employment market provides a reason to cut, while concerns over sticky inflation remain and support leaving rates unchanged. According to CME Group’s FedWatch tool, the futures-market-implied probability of a quarter-point reduction to a range of 3.50% to 3.75% is now about 83%, roughly double what it had been a week ago.
Views differ from our contributors as to where interest rates might settle. Robert Ostrowski from Federated Hermes has penned an excellent article about unanswered questions and discusses tariffs, inflation, employment, and how conflicting views are being reflected in yield curves.
I had a laugh-out-loud moment when I read T. Rowe Price’s Thomas Poullaouec’s article when he likened the decision to ‘driving in the fog’, in this month’s asset allocation article.
Popular contributor, Chris Iggo from AXA IM, suggests rates are heading below 3% in 2026, in contrast to PGIM, who expect one more cut as rates head towards neutral at 3-3.25%.
There’s a new credit fund, the T. Rowe Price OHA Flexible Credit Income Fund AUD for wholesale investors.
T. Rowe Price has published its 2026 outlook, where they state that diversification and inflation hedging are key.
In Australian corporate bond issue news:
- BNP Paribas has priced a $750m deal for a perpetual non call 5.5 year AUD Additional Tier 1 security with a 7% coupon
- Suncorp has priced a $1.5 billion dual tranche five-year senior unsecured deal:
- A $900m floating rate tranche at 80 basis points over 3-month BBSW
- A $660m fixed rate tranche with a 4.7% coupon
- Lend Lease has announced a March 2031 buyback for its 31 March 2031 senior unsecured bond
- Dexus Finance has mandated 30-year non-call 5.25-year and/or a 30-year non-call 8.25-year subordinated notes
- Tabcorp has priced a $300m 5.5-year senior bond at 200 basis points over semi quarterly swap or a 5.991% coupon.
Have a great week!
