The stockmarket had an extremely strong day in the US last night with the S&P 500 finishing up 7.08%. It has been the biggest 10-day rally since 1938.
The US Treasury last night provided detail around its plan to remove toxic debt from the banking system by combining government funds with private funds to buy 1 Trillion USD worth of bad debt assets from banks. For more details see http://www.bloomberg.com/apps/news?pid=topnews
The 90-day June futures have sold off 7 or 8 points this morning in response and are now at the equivalent of 2.88%. In my mind however further easings remain likely.
March 24, 2009
March 19, 2009
Quantitative Easing
Westpac / Melbourne Institute Index January reading came out yesterday at -3.1% for the year. This gauge suggests the likely pace of economic growth three to nine months into the future and is down from the December reading of -2.8%. It's the lowest level since August 1990 and it's taken half the time it took 18 years ago to get there. This deeply negative level is consistent with contracting economic activity.
QUANTITATIVE EASING. This is the term given to actions central banks are left with once they run out of room to move on monetary policy. With interest rates at 0 - .25% in the US this is the step Ben Bernanke is now taking. Last night he committed USD 1.15 trillion to the fight to revive the economy. As well as buying mortgage debt he is diving in, over the next 6-months, to long term Treasury securities with USD 300 bln in an effort to lower long term rates. Most hosing loans in the US are based off the 30 year bond rate and fixed rate mortgages are above 5%. The announcement had an immediate effect with a sharp rally in long bonds.
Our futures are a little stronger as a result. A 90 day bank bill from mid-Dec is trading at 2.60%
QUANTITATIVE EASING. This is the term given to actions central banks are left with once they run out of room to move on monetary policy. With interest rates at 0 - .25% in the US this is the step Ben Bernanke is now taking. Last night he committed USD 1.15 trillion to the fight to revive the economy. As well as buying mortgage debt he is diving in, over the next 6-months, to long term Treasury securities with USD 300 bln in an effort to lower long term rates. Most hosing loans in the US are based off the 30 year bond rate and fixed rate mortgages are above 5%. The announcement had an immediate effect with a sharp rally in long bonds.
Our futures are a little stronger as a result. A 90 day bank bill from mid-Dec is trading at 2.60%
March 17, 2009
RBA Minutes
The RBA minutes from the March meeting have been released http://www.rba.gov.au/MonetaryPolicy/RBABoardMinutes/2009/rba_board_min_03032009.html
I've pasted the concluding two paragraphs below. These paragraphs came after a comprehensive summation of the global and domestic economy - none of it very pretty I have to say.
What I get from these last two paragraphs are that they were in two minds whether to ease or not. The last sentence implies to me that they intended to ease after this brief pause. Expect an easing next month.
Members further noted that the easing implemented over recent months was large by historical standards. These measures, together with very substantial fiscal policy measures, had been taken before official data were available to gauge the extent of economic weakness. Early indications were that the monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect, but the size of this remained unclear and it would take some time for the full impact to come through.
The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation. Members could see reasonable cases for both courses of action. On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged. Members believed this would leave adequate flexibility for policy at future meetings.
I've pasted the concluding two paragraphs below. These paragraphs came after a comprehensive summation of the global and domestic economy - none of it very pretty I have to say.
What I get from these last two paragraphs are that they were in two minds whether to ease or not. The last sentence implies to me that they intended to ease after this brief pause. Expect an easing next month.
Members further noted that the easing implemented over recent months was large by historical standards. These measures, together with very substantial fiscal policy measures, had been taken before official data were available to gauge the extent of economic weakness. Early indications were that the monetary and fiscal stimulus that had been applied to the economy was having an expansionary effect, but the size of this remained unclear and it would take some time for the full impact to come through.
The question for policy was whether further stimulus should be added at this meeting, or whether, having reduced rates at each meeting since September, the Board should pause for a further evaluation of the situation. Members could see reasonable cases for both courses of action. On balance, they judged that, having made a major change to monetary policy over the preceding several meetings in anticipation of weak economic conditions, the best course for this meeting was to leave the cash rate unchanged. Members believed this would leave adequate flexibility for policy at future meetings.
March 13, 2009
Labour Force Figures
Labour force figures released yesterday provide an unambiguous indication of an economy in downturn. The key figure to watch is the number employed and full-time positions dropped by 53,800 - the largest monthly drop since 1991 when 79,400 positions were lost and the economy was in official recession. Part-time positions increased by 55,600 reflecting the need for people to get work wherever they can find it and women returning to the workforce possibly due to their partners loosing their job. Household income will undoubtedly be impacted which will lead to lower spending and in-turn further reductions in employment.
The steepness of the downward momentum means that fiscal and monetary stimulus must be more aggressive than is notionally required. For this reason I don't think the RBA easing cycle has finished. The market is pricing in 50 points in April. The RBA may want to wait and see how the new fiscal stimulus impacts on the economy but the stakes are too high and I think erring on the side of caution and going too far in this environment rather than not enough should be the way to go..
The steepness of the downward momentum means that fiscal and monetary stimulus must be more aggressive than is notionally required. For this reason I don't think the RBA easing cycle has finished. The market is pricing in 50 points in April. The RBA may want to wait and see how the new fiscal stimulus impacts on the economy but the stakes are too high and I think erring on the side of caution and going too far in this environment rather than not enough should be the way to go..
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