RBA Hold Rates for a Fifth Consecutive Time

This morning the Reserve Bank of Australia kept its benchmark rate unchanged at 4.35%, meeting market expectations. This marked the fifth consecutive hold as inflation continues to remain above the central banks 2-3% target, having subsided to 3.6% over the first quarter of 2024.

Slowing growth and a cooling labour market however mean that the RBA continue to navigate across a precarious tightrope in setting monetary policy.

Here, the summary record of the meeting identified that “The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth”.

It therefore concluded that “the path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out”.

Wage growth in the eurozone rose at its fastest pace since Q4 2022, according to the yesterday’s data release. In the first three months of the year, wages grew at an average of 5.3% on an annualised basis. This came as wages grew 5% across the services sector, 5.2% across the construction sector and 4.8% across industry,

When looking at individual member states, wages appreciated 6.3% in Germany, while Spain’s rose 4.5%. Elsewhere, Italy’s rose 3.3%, while France saw less than half that of Germany which rose 2.6%.

When taken alongside a wider set of French labour data, which showed unemployment rise from 7.1% in Q1 2023 to 7.5% in Q1 2024, there is increasing evidence that the French labour market is cooling, as France heads to the polls. (Macron interestingly has set an objective of delivering full employment by the end of his presidential term in 2027).

When looking at averages across the EU as a whole, wages grew marginally higher at 5.8%. This came as wages soared 16.4% in Romania, 15.8% in Bulgaria, 15.3% in Croatia, 14.1% in Poland and 13.7% in Hungary.

Oil prices edged higher during the course of yesterday’s session as they traded close to the highest level since April.

Here, WTI crude futures appreciated above $80 dpb on Monday having risen around 2% over the day.

This rise comes as supply-side concerns remain given Saudi Arabia and Russia’s commitment to production cuts as OPEC+ looks to support prices. On the demand-side, growth also appears to look strong though the International Energy Agency warned on last week that there could be spare capacity of eight million barrels a day by 2030. This comes as companies continue to invest into increasing production around the world, potentially limiting the extent to which OPEC+ can control production.

For more on this topic, follow the link to the FT here.

Nigel Farage was in Wales to announce his party’s ‘contract with the public’ yesterday – as apparently the word ‘manifesto’ is synonymous with ’lies’. The contract would translate into a significantly smaller government and welfare state, with the exception of the NHS, where they’re proposing to reduce waiting lists to zero and spend a further £17bn a year on reforming the system. Other headlines include getting immigration to net-zero, scrapping all climate related net-zero pledges and getting defence spending to 3% within six years.

They also think that they’ll be able to save £5 in every £100 spent by the government, saving £50bn a year, whilst also not repaying interest on QE debt created by the Bank of England and lent to the government.

The latter would surely see the credit rating of the government shot to bits if we decided not to pay interest back to an independent creditor? Or at least, that’s probably how the markets would view it and act accordingly.

The announcement looks far more like an ode to the disenfranchised that it looks like a serious government policy. Of course, when you’ve got no chance of taking power then there’s perhaps a greater tendency to say what you want, with the only risk being to other parties that have to waste time explaining why this simply isn’t possible.