Key Takeaways:
- Reserve Bank of Australia plans to carry out two more interest rate hikes this year.
- Recession risks intensify as the ASX 200 index lags behind competitors.
- Treasury bond yields rise, confirming the recession fears.
YEREVAN (CoinChapter.com) – Much like its overseas partners in the US, the Reserve Bank of Australia started a concession of interest rate hikes in Q2, 2022, and by July 2023, raised the interest rates to 4%. Additionally, RBA has not ruled out two more revisions this year, intensifying recession fears.
Is Australia in recession or not? Experts weigh in
As the Australian Treasury yields keep climbing, the stock market index ASX 200 lags behind its competitors, such as NASDAQ 100, which is up 37% year-to-date. Meanwhile, ASX 200 YTD uptrend reached only 3.4%. The slow increase could be indicative of market participants expecting another drop ahead.
According to the Guardian, Australian experts see a declining inflation rate in the coming months. The official quarterly measure of inflation “peaked at 7.8% in the year to December” and is now 7%, and the newer monthly measure peaked at 8.4% and is now 5.6%.
Also read: Treasury Yield Curve Inversion Persists as Investors Brace for Recession – Equities Slide.
Diana Mousina of the Australian Mutual Provident Society (AMP) said that data does not indicate a recession yet, albeit calling the latter “imminent.” However, Simon Doyle, the CEO of asset manager Schroders, commented that Australian traders and the general population do not yet recognize the recession, but that does not mean they can avoid it.
Despite the significant rise in interest rates, the unemployment rate is still very low, people still have jobs, and it doesn’t feel like a recession. We need to take a bit of time; the economy is messy. Recession is coming, and there’s evidence of it.
he said in a recent interview.
Furthermore, 27 experts assembled by the Australian publication The Conversation concluded that a recession is in the books.
In detail, 12 of the 27 think a recession is either more likely than not or an even chance. And almost all expect a “per-capita recession,” in which economic growth fails to keep pace with population growth, sending living standards backward.
What about the rising Treasury yields?
In short, Treasury yields are the annual returns investors get for buying government bonds. Typically, climbing Treasury yields indicate that borrowing is becoming more expensive. Thus, they act as a proxy for longer-term interest rates and could provide additional insight into the “recession” dilemma.
Moreover, the short-term bond yields and long-term bond yields tend to differ. In a “healthy” economic environment, bonds with longer maturity should grant more interest as investors take on greater risk. An inverted yield curve basically means that the long-term rate dipped below the short-term rate.
As of July 3, the Australian 10-year government bonds offer a 3.97% yield. Per CNBC, the 2-year yield stands at 4.2%, ensuring a yield curve inversion indicative of a recession.
As the market uncertainty persists, traders worldwide should brace themselves for more pain, including Australian investors.
Also read: Bitcoin Price Hesitates, But Further Gains Seem Likely Toward $34K.
Frequently Asked Questions
The stock market is open today, July 3, 2023, in the US, but it will be closing early in honor of Independence Day.
Both the NYSE and Nasdaq will close at 1:00 p.m. on Monday, July 3.
Banks in the US will be open on July 3. However, they will not work on July 4, as the latter is a Federal Holiday.
July 3 is not a holiday per se. However, it is the day before US Independence Day on July 4. The latter is the anniversary of the publication of the Declaration of Independence of the United States of America from Great Britain in 1776.
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