Freight rates in freefall
Freight rates were down another 6 per cent this week, continuing their multi-month plunge.
You can argue the toss over whether is this a 'good thing' (declining inflation pressures) or a 'bad thing' (a recessionary indicator)...
On the one hand, this suggests that inflation should gradually fall back to earth.
But markets are clearly still worried about energy prices, while the Biden administration doesn't appear to be doing all that much to help.
After the EV tax credits (which increased electronic vehicle prices) and the Inflation Reduction Act (which is inflationary), yesterday came the announcement of a $10,000 student debt forgiveness for those earning under $125,000.
This controversial $300 billion policy appeared to infuriate almost everyone and almost broke the internet with the range of highly partisan takes.
Taking a step back from the the politics to look at market-based measures of inflation expectations it does look as though the Federal Reserve will have to be more aggressive in fighting inflation.
10-year Treasury yields were also up.
Down Under
Back in Australia, the latest wages figures showed very little sign of significant acceleration.
And the latest PMI figures reported this week see the economy heading towards contractionary territory.
Charts from CBA:
And, hopefully, there is some easing of price pressures on the way too.
CBA sees the terminal cash rate for this cycle at 2.60 per cent, with two rate cuts to come in 2023.
"The PMI data today supports our RBA call. We see the cash rate target peaking at 2.60% in late 2022 (a level which we consider to be contractionary). And we have two 25bp rate cuts pencilled in for H2 23.
We think that provided the RBA pause in their tightening cycle when the cash rate is ~2.60% (close to the 2.5% level the RBA have nominated as their estimate of neutral, which is ~100bp above our assessment of neutral) the data will indicate that there is no need to continue to take the policy rate higher. Indeed taking the cash rate higher would likely generate a hard landing in the economy."
