Corporate Confidence Contrasts with Market Fears

Australian top corporations and financial institutions are optimistic about short-term economic growth, despite market fears about inflation and rising interest rates. According to a survey of 83 of Australia's largest corporations by market capitalisation, corporate treasurers, economists, and chief executives expressed confidence that economic growth would not increase inflationary pressures. In contrast, the bond market sell-off was triggered by fears about inflation and rising interest rates. The survey's findings are seen as adding weight to calls by politicians and bureaucrats for the markets to react less hysterically to emerging evidence of economic recovery.

Key Takeaways:

• The survey's overall sentiment index fell from 133.3 in the December quarter to 90.7 in the latest quarter, indicating that respondents expect bond yields to ease in the next year.
• 59% of respondents expected Commonwealth 10-year bond rates to fall by the end of the June quarter, compared to 32% in the previous survey.
• Only 31% of respondents now expect 10-year bond rates to increase by the end of June.
• Just over half the respondents believe that long-term rates will be higher than current rates by the March quarter next year.
• The average expected rate at that time is 8.01 per cent, only marginally higher than the current bond rate of 7.95 per cent.
• The survey's findings are seen as adding weight to calls by politicians and bureaucrats for the markets to react less hysterically to emerging evidence of economic recovery.
• Politicians such as Mr. Keating and bureaucrats such as Mr. Fraser have voiced similar sentiments, with Mr. Keating dismissing market fears about inflation as "dismal" and Mr. Fraser stating that inflation is under control.

Statistics:

• The yield on 10-year Commonwealth bonds has increased from 6.41 per cent at the beginning of February to 7.63 per cent and 7.71 per cent in the June and September quarters this year.
• 59% of respondents expect Commonwealth 10-year bond rates to fall by the end of the June quarter.
• 31% of respondents now expect 10-year bond rates to increase by the end of June.
• Only 32% of respondents expected a decline in 10-year bond rates in the previous survey.
• The average expected rate for the March quarter next year is 8.01 per cent.

Sources:

• Business Economics research group - Quarterly survey of interest rate sentiment.
• Peter Masson, managing director of Business Economics, quoted in the article.
• Mr. Keating, Australian Prime Minister, as quoted in the article.
• Mr. Fraser, Reserve Bank governor, as quoted in the article.
• Australian Financial Markets, as reported in the article.