The RBA Governor Glenn Stevens spoke at the CEDA dinner last night in Melbourne. His speech didn’t directly comment on the outlook of monetary policy and was more focused on Australia’s longer-term economic outlook. He expects business development to rise significantly over the next few years and demand for our resources to remain strong from the likes of India and China. Stevens did mention that “we obviously have to be wary of overheating”, which may suggest further tightening if the economy continues to be heavily supported by the minerals boom.
Debt fears continue to linger in Europe despite Irelands $EU85b bailout package, as investors are focused of debt woes spreading to Italy, Portugal and Spain. This came on the back of an Italian Sovereign Bond auction that attracted lackluster demand fuelling fears about debt refinancing.
HIA Home sales rose 2.4% yesterday, which was the first time in 6 months, but business inventories fell 0.8 per cent in the September quarter despite economists expecting inventories to have risen by 0.4 per cent. Australian company profits also fell 1.5% in Q3. These figures are causing economists to lower their expectations for GDP to be released in Wednesday. Some are even talking now of a negative number.
November 30, 2010
November 29, 2010
RBA Governor Parliamentary Speech
Reserve Bank of Australia governor Glenn Stevens addressed the parliament on Friday, stating that interest rates in the short term were at the appropriate levels. When asked about the outlook for interest rates Stevens mentioned that “at the moment most commentators do not anticipate and market pricing do not anticipate any further near-term change by us for some time” and that “I think that it is probably a reasonable position for them to have based on the information we have”. This has effectively ruled out any chance of a rise in December, however there was a chance of more rises “next year and maybe a little more after that”.
News from over the weekend also saw Ireland strike a deal with the EU and IMF for a combined $EU85b financing deal. This will finance Ireland’s National Recovery Plan, which is planning to reduce and recapitalise the banking system and securer a surer footing for its public finances. The plan revolves around reducing its deficit from 14.4% of GDP (32% with bank recapitalisation) to 3% by 2014 with 20% spending cuts and tax rises.
A busy week in the data front for Australia this week, highlighted by the Q3 GDP on Wednesday and Retail Sales on Thursday. Today will see October HIA Home Sales and the RBA Governor Stevens is speaking at a CEDA dinner on the topic of “The Challenge of Prosperity”.
News from over the weekend also saw Ireland strike a deal with the EU and IMF for a combined $EU85b financing deal. This will finance Ireland’s National Recovery Plan, which is planning to reduce and recapitalise the banking system and securer a surer footing for its public finances. The plan revolves around reducing its deficit from 14.4% of GDP (32% with bank recapitalisation) to 3% by 2014 with 20% spending cuts and tax rises.
A busy week in the data front for Australia this week, highlighted by the Q3 GDP on Wednesday and Retail Sales on Thursday. Today will see October HIA Home Sales and the RBA Governor Stevens is speaking at a CEDA dinner on the topic of “The Challenge of Prosperity”.
November 25, 2010
Construction Work Numbers
Yesterday in Australia saw Construction Work Done falling 2.1% for Q3 (median +2%), with the private sector residential building a significant 5.9% lower. These numbers may suggest a rise in the downside risks for Q3 GDP expectations, which we are currently expecting to come in around 0.8%.
The US economic data was mixed, however the markets seemed to focus on the positive results from the Jobless Claims and Consumer Confidence, while ignoring the weak data for the housing sector, business spending figures and durable goods orders. As a result, the markets were higher across the board.
The weekly Jobless claims fell 34k to 407k, the lowest seen in two years, while the University of Michigan confidence rose to 71.6 in November from 67.7 in October. New home sales fell 8.1% in October (+1.6% median) and the US durable goods orders fell 3.3%, below the +0.1% median.
The European markets also gained some confidence with some more developments from Ireland. The Government released details of its 4-year austerity plan, where it plans to cut spending by 20% and raise income tax by $EU 1.9B. The $EU 85B bailout package has also been discussed with the EU/IMF and the sticking point remains to keep the corporate tax rate at 12.5%.
More positive news for Europe saw the German IFO rising to 109.3 from 107.7 in October. This is the highest level seen in the 20 year history of the number and further demonstrates the fundamental strength of the German economy, and in particular their high technology production sector. UK GDP came in as expected at 0.8% for Q3.
Today will see Q3 capital expenditure data released, however there are no other highlights as US markets are closed.
The US economic data was mixed, however the markets seemed to focus on the positive results from the Jobless Claims and Consumer Confidence, while ignoring the weak data for the housing sector, business spending figures and durable goods orders. As a result, the markets were higher across the board.
The weekly Jobless claims fell 34k to 407k, the lowest seen in two years, while the University of Michigan confidence rose to 71.6 in November from 67.7 in October. New home sales fell 8.1% in October (+1.6% median) and the US durable goods orders fell 3.3%, below the +0.1% median.
The European markets also gained some confidence with some more developments from Ireland. The Government released details of its 4-year austerity plan, where it plans to cut spending by 20% and raise income tax by $EU 1.9B. The $EU 85B bailout package has also been discussed with the EU/IMF and the sticking point remains to keep the corporate tax rate at 12.5%.
More positive news for Europe saw the German IFO rising to 109.3 from 107.7 in October. This is the highest level seen in the 20 year history of the number and further demonstrates the fundamental strength of the German economy, and in particular their high technology production sector. UK GDP came in as expected at 0.8% for Q3.
Today will see Q3 capital expenditure data released, however there are no other highlights as US markets are closed.
November 24, 2010
Euro Debt Fears Continue
Further concerns arose overnight that Ireland may not have the political will and ability to see through any rescue arrangement. This comes on the back of the Government planning EU800m in welfare cuts for 2011 while keeping the corporate tax rate constant at 12.5%. As a result of intertwining debt talks, the German Chancellor mentioned that the prospect of serial European bailouts was “exceptionally serious”.
Markets will be on watch over the next few sessions as North and South Korea exchanged artillery fire. As the news broke risk weighted assets such as the AUD were sold of in large volumes, so the financial markets will be watching with eyes and ears to see where this will lead.
In the US, the minutes of the November 2-3 FOMC Meeting showed that members were varied over the benefits of the QE2 package, which was released. The document stated that some members were concerned that the Quantitative Easing would have limited economic benefit while placing upward pressure on inflation and devaluing the $USD. US GDP was also revised higher to 2.5% from the preliminary 2%, which is good news for world growth prospects.
In Australia today there is no key data, however we will see Construction Work Done (1.7% rise expected) for Q3, along with the HIA housing affordability data. There is also plenty of data to be released ahead of the Thanksgiving Long weekend with New Home Sales and Durable Goods orders in the US. The Europe session will be highlighted by UK GDP and the German IFO.
Markets will be on watch over the next few sessions as North and South Korea exchanged artillery fire. As the news broke risk weighted assets such as the AUD were sold of in large volumes, so the financial markets will be watching with eyes and ears to see where this will lead.
In the US, the minutes of the November 2-3 FOMC Meeting showed that members were varied over the benefits of the QE2 package, which was released. The document stated that some members were concerned that the Quantitative Easing would have limited economic benefit while placing upward pressure on inflation and devaluing the $USD. US GDP was also revised higher to 2.5% from the preliminary 2%, which is good news for world growth prospects.
In Australia today there is no key data, however we will see Construction Work Done (1.7% rise expected) for Q3, along with the HIA housing affordability data. There is also plenty of data to be released ahead of the Thanksgiving Long weekend with New Home Sales and Durable Goods orders in the US. The Europe session will be highlighted by UK GDP and the German IFO.
November 23, 2010
Further Irish Fears lead markets lower
Stock markets were weaker overnight as the news of the Irish bailout failed to ease concerns that the debt crisis would spread to other nations. Moodys stated that a multi-notch downgrade in Irelands Aa2 credit rating was “most likely” because any rescue package would increase the countries debt burden. To make matters worse, the Coalition Government is appearing to crumble as the Green Party has publicly stated they will quit the Government after the four-year budget plan has been announced.
US markets were also in the red following reports of a federal insider trading investigation. The WSJ reported that the FBI raided the Connecticut offices of two Hedge Funds in an insider trading investigation.
No key data from Australia today, but plenty in the markets tonight. US GDP is expected to be revised higher for Q3, while existing home sales and the Richmond fed Manufacturing index are also released. Europe will see the advanced releases for the manufacturing and services PMI’s.
US markets were also in the red following reports of a federal insider trading investigation. The WSJ reported that the FBI raided the Connecticut offices of two Hedge Funds in an insider trading investigation.
No key data from Australia today, but plenty in the markets tonight. US GDP is expected to be revised higher for Q3, while existing home sales and the Richmond fed Manufacturing index are also released. Europe will see the advanced releases for the manufacturing and services PMI’s.
November 22, 2010
Ireland
Ireland has finally accepted that they need help and speculation is that the European Finance Ministers have agreed to a roughly $124 billion AUD bailout. Britain and Sweden who aren't in the Euro and the IMF are also involved in the rescue.
"The aid is seen as necessary to prevent a financial black hole caused by the collapse of Ireland’s banking sector from bringing down other weak euro economies such as Portugal and Spain, and from infecting the wider international financial system." SMH
China
The Peoples Bank of China increased its Reserve Ratio for its Banks on Friday in order to further control the growth in money and credit. Inflation data for October rose from 3.6% to 4.4%, reflecting a step up in food prices primarily from the cold weather and flooding, however there were also signs that the property prices have begun to rise again. Inflation in China remains a sensitive policy issue, so don’t be surprised to see further measures designed to curb price rises.
"The aid is seen as necessary to prevent a financial black hole caused by the collapse of Ireland’s banking sector from bringing down other weak euro economies such as Portugal and Spain, and from infecting the wider international financial system." SMH
China
The Peoples Bank of China increased its Reserve Ratio for its Banks on Friday in order to further control the growth in money and credit. Inflation data for October rose from 3.6% to 4.4%, reflecting a step up in food prices primarily from the cold weather and flooding, however there were also signs that the property prices have begun to rise again. Inflation in China remains a sensitive policy issue, so don’t be surprised to see further measures designed to curb price rises.
November 19, 2010
RBA Dep. Governor Speaks
In his speech yesterday, the RBA’s Battellino mentioned the upward pressures our economy would face in the medium term would continue to eventuate as spare capacity is limited and the resource boom continues. The speech stated that Asia is a bright spot in the world economy and Chinese and Indian demand for steel will remain strong for some time yet. The dialogue was reasonably hawkish and confirmed the point that we are looking at another raise at some stage, the question still remains as to when. It is our opinion that we can rule out December, however the chances of a February rise are materializing.
Markets were stronger overnight as Ireland move closer to accepting the EU-IMF rescue package. The EU, IMF and ECB officials started to assess the books of the Irish Banks, which forced the Irish Government to abandon its refusal to seek foreign aid. The Irish Finance Minister Lenihan acknowledged that the Government may accept the aid, in a package that may be worth ‘tens of billions’ of Euros.
Economic data from the US was also positive. The Philadelphia Fed Survey rose to a level of 22.5 in November, well above the Median of 5.0, and Octobers 1.0. This suggests that manufacturing activity remains in good shape, which was further acknowledged by the fact jobless claims came in positive at 439k, virtually as expected.
Markets will be on high alert today as the rumors continue to circulate that China will announce a tightening of Monetary Policy today. There is no key data from Australia, but tonight will see the Fed Chairman Bernanke giving a speech at the ECB Conference in Frankfurt. The notables attending the conference will be the ECB President Trichet, IMF Managing Director Strauss-Kahn and the Peoples Bank of China’s (PBoC) Zhou Xiaochuan.
Markets were stronger overnight as Ireland move closer to accepting the EU-IMF rescue package. The EU, IMF and ECB officials started to assess the books of the Irish Banks, which forced the Irish Government to abandon its refusal to seek foreign aid. The Irish Finance Minister Lenihan acknowledged that the Government may accept the aid, in a package that may be worth ‘tens of billions’ of Euros.
Economic data from the US was also positive. The Philadelphia Fed Survey rose to a level of 22.5 in November, well above the Median of 5.0, and Octobers 1.0. This suggests that manufacturing activity remains in good shape, which was further acknowledged by the fact jobless claims came in positive at 439k, virtually as expected.
Markets will be on high alert today as the rumors continue to circulate that China will announce a tightening of Monetary Policy today. There is no key data from Australia, but tonight will see the Fed Chairman Bernanke giving a speech at the ECB Conference in Frankfurt. The notables attending the conference will be the ECB President Trichet, IMF Managing Director Strauss-Kahn and the Peoples Bank of China’s (PBoC) Zhou Xiaochuan.
November 18, 2010
Wage Cost Index
The Australian Wage cost index rose 1.1% in Qtr3 for 3.5%yoy, prompting all employees of Curve Securities to ask for a pay rise. Australian skilled vacancies fell 1% in November, continuing the trend with its sixth consecutive decline, however this is to be expected with more people joining the workforce of recent times.
Markets in Asia were also weighed down with further rumors that China would raise interest rates. Premier Wen Jiabao said the cabinet is drafting measures to curb inflation, which propelled expectations they will tighten policy. The concern for Australia is that the stimulus measures put in place during the GFC may create asset bubbles (cause of the Asian crisis), so measures that will see China put in policies of sustainable growth will be welcomed.
European markets rebounded slightly overnight, however not enough to regain the losses made over the last few sessions. This came on the back of news that Eurozone Finance Ministers reported that they would start assessing the books of Irish Banks to determine whether Ireland can fix the banking system, or if it will need to tap the EU/IMF rescue fund. Ireland still appears to be reluctant to ask for aid, as they believe they can continue to stay afloat with budget cuts and tax increases, just as the US did in the 1930’s.
The Minutes of November Monetary Policy meeting were released last night and revealed and the majority voting for no change in policy. The Minutes did mention that the focus of the MPC would be moving away from more Quantitative Easing purchases as upside risks to inflation had significantly materialized.
News from America saw the CPI rising 0.2% for a 1.2%yoy measure; further highlighting the concerns the Fed has on deflation. Housing starts were also lower, down 11.7% in October to just 519k.
The focus today will be on Europe to see if any concrete proposals for Ireland will emerge. In Australia today, the Q3 AWOTE data is released while the RBA Deputy Governor Battellino speaks at a function in Perth. Tonight’s news will include US jobless claims, the Philly Fed Survey and UK retail sales.
Markets in Asia were also weighed down with further rumors that China would raise interest rates. Premier Wen Jiabao said the cabinet is drafting measures to curb inflation, which propelled expectations they will tighten policy. The concern for Australia is that the stimulus measures put in place during the GFC may create asset bubbles (cause of the Asian crisis), so measures that will see China put in policies of sustainable growth will be welcomed.
European markets rebounded slightly overnight, however not enough to regain the losses made over the last few sessions. This came on the back of news that Eurozone Finance Ministers reported that they would start assessing the books of Irish Banks to determine whether Ireland can fix the banking system, or if it will need to tap the EU/IMF rescue fund. Ireland still appears to be reluctant to ask for aid, as they believe they can continue to stay afloat with budget cuts and tax increases, just as the US did in the 1930’s.
The Minutes of November Monetary Policy meeting were released last night and revealed and the majority voting for no change in policy. The Minutes did mention that the focus of the MPC would be moving away from more Quantitative Easing purchases as upside risks to inflation had significantly materialized.
News from America saw the CPI rising 0.2% for a 1.2%yoy measure; further highlighting the concerns the Fed has on deflation. Housing starts were also lower, down 11.7% in October to just 519k.
The focus today will be on Europe to see if any concrete proposals for Ireland will emerge. In Australia today, the Q3 AWOTE data is released while the RBA Deputy Governor Battellino speaks at a function in Perth. Tonight’s news will include US jobless claims, the Philly Fed Survey and UK retail sales.
November 17, 2010
RBA Minutes
Yesterday saw the release of the minutes from the RBA’s Board meeting on November 2, where the bank unexpectedly raised the cash rate by 25bps. The decision was described as being ‘finely balanced’; suggesting that rate hikes ahead may be more on the conservative side. Just as described in the October meeting, “a case could be made for waiting a little longer: the expected pick-up in domestic growth would only be in its early stages; the latest CPI outcome had been relatively good; credit growth and housing prices had been subdued’”. With this in mind, the minutes also stated “a gradual upward trend in inflation remained likely over the medium term”, further confirming that the bias still remains heavily towards raising rates, as “monetary policy was to be conducted in a forward-looking way’.
For a link to the minutes, click here.
As we can see, the debate between the backward looking and forward looking components remains tight, as seen over the last two meetings. With interest rates now higher, and the idea that only a “modest tightening of monetary policy was prudent”, the likelihood of a December 7 hike is extremely doubtful. It still remains extremely probable that we are to see further rises throughout 2011, and we are expecting the cash rate to move 50bps higher to 5.25% at some stage next year. If there is to be a rise in February next year, we would have to see further evidence that the economy is accelerating and the expected investment boom is further under-way.
The markets last night moved heavily into the red as money flowed into ‘safe haven’ assets on the back of negativity from all parts of the globe. China started the rot with rumours that they were to further tighten monetary policy, on the back of reports that they would unveil food price controls and limits on commodity speculation. Moving to Europe, Ireland once again hit the headlines as they again dismissed calls to ask for financial aid. Despite this, there were reports this morning that they are now negotiating a package with the EU and the IMF. To further add to the negativity, US core PPI fell 0.6% in Oct (median +0.1%), and car prices fell 3%.
The reports that China is attempting to slow their economy is not all negative, as Australia should be more concerned over Asia’s long term sustainable growth, as continued demand for our exports is vital to our success. The European reports are however slightly more negative, as global growth may be subdued from stoppages in credit growth.
Today in Australia will see the Q3 Wage Cost index released, as well as November skilled vacancies. The headlines acts to keep a close eye on tonight will be US CPI, US Housing Starts and the BoE Minutes.
For a link to the minutes, click here.
As we can see, the debate between the backward looking and forward looking components remains tight, as seen over the last two meetings. With interest rates now higher, and the idea that only a “modest tightening of monetary policy was prudent”, the likelihood of a December 7 hike is extremely doubtful. It still remains extremely probable that we are to see further rises throughout 2011, and we are expecting the cash rate to move 50bps higher to 5.25% at some stage next year. If there is to be a rise in February next year, we would have to see further evidence that the economy is accelerating and the expected investment boom is further under-way.
The markets last night moved heavily into the red as money flowed into ‘safe haven’ assets on the back of negativity from all parts of the globe. China started the rot with rumours that they were to further tighten monetary policy, on the back of reports that they would unveil food price controls and limits on commodity speculation. Moving to Europe, Ireland once again hit the headlines as they again dismissed calls to ask for financial aid. Despite this, there were reports this morning that they are now negotiating a package with the EU and the IMF. To further add to the negativity, US core PPI fell 0.6% in Oct (median +0.1%), and car prices fell 3%.
The reports that China is attempting to slow their economy is not all negative, as Australia should be more concerned over Asia’s long term sustainable growth, as continued demand for our exports is vital to our success. The European reports are however slightly more negative, as global growth may be subdued from stoppages in credit growth.
Today in Australia will see the Q3 Wage Cost index released, as well as November skilled vacancies. The headlines acts to keep a close eye on tonight will be US CPI, US Housing Starts and the BoE Minutes.
November 16, 2010
Ireland in need of a bit of their own luck.
There was no significant news in Australia yesterday, however the overnight markets brought more interesting developments into the debt concern of Europe. The fear is that Ireland will not be able to meet the repayments on their $EU97bn debt which is continually rising. Unemployment within the country has surged to 13.6% and the banking sector is likely to need further funds. The fiscal deficit is expected to reach an incredible 32% of GDP in 2010. As a result, 10-year Irish Government debt has surged to 8%, in comparison to 2.5% for Germany. The Irish have claimed they will not have to dive into the $750bn Euro Financial Stability Fund that Greece tapped into earlier this year, and they will present a new fiscal plan on December 7 to demonstrate they are on top of matters.
What does this mean for Australia? The concern is that Europe is an important source of funding for Australian Banks and Companies, so Ireland's troubles could aggravate the debt markets. This means that we may experience problems with how easily we can fund ourselves.
In positive news, Japanese GDP rose 0.9% for the most recent Qtr, much higher than the expected 0.6%. Even more encouraging was the fact that the jump was a factor of domestic spending, rather than export revenue. US retail sales were also well above market forecasts of +0.7%, jumping to 1.2% for the Qtr. These are positive results for the global economy going into the Christmas period, and we could expect to see US GDP higher for Q4, increasing global confidence and risk appetite.
The Focus of today will be on the RBA Minutes to be released from the Nov 2 board meeting, where the bank unexpectedly raised the cash rate. We are predicting that it would have been a close decision; just as the October judgment to hold was also close. This implies that some Board members will need some further convincing about future hikes particularly as the commercial Banks have raised their rates 10-22 points above that of the RBA doing a bit of their work for them.
What does this mean for Australia? The concern is that Europe is an important source of funding for Australian Banks and Companies, so Ireland's troubles could aggravate the debt markets. This means that we may experience problems with how easily we can fund ourselves.
In positive news, Japanese GDP rose 0.9% for the most recent Qtr, much higher than the expected 0.6%. Even more encouraging was the fact that the jump was a factor of domestic spending, rather than export revenue. US retail sales were also well above market forecasts of +0.7%, jumping to 1.2% for the Qtr. These are positive results for the global economy going into the Christmas period, and we could expect to see US GDP higher for Q4, increasing global confidence and risk appetite.
The Focus of today will be on the RBA Minutes to be released from the Nov 2 board meeting, where the bank unexpectedly raised the cash rate. We are predicting that it would have been a close decision; just as the October judgment to hold was also close. This implies that some Board members will need some further convincing about future hikes particularly as the commercial Banks have raised their rates 10-22 points above that of the RBA doing a bit of their work for them.
November 12, 2010
Employment
Employment gave a mixed but essentially positive result yesterday. While there were around 30,000 more jobs (expectations 20,000) this was made up of 43,800 in part time with a loss of 14,100 in full-time jobs.
The unemployment rate went up to 5.4% though from 5.1%. Expectations were for a drop to 5.0%. There was a huge increase in the supply of labour as elements of the working age population were encouraged to look for work. The participation rate rose to an all-time record high going back to 1978 of 65.9%. This is positive as it increases the nations productive capacity and keeps wage inflation at bay.
China
Speaking of inflation China is suffering (if that's the right word) from a jump in inflation from 3.6% to 4.4%. Industrial production was +13.1% from +13.3% and retail sales were up 18.6% from 18.8% (all y/y figures). Most of the increase in inflation was from food but their producer price index also jumped from 4.3% to 5%. This explained why they brought in measures for banks to increase reserves and curtail lending earlier in the week.
The unemployment rate went up to 5.4% though from 5.1%. Expectations were for a drop to 5.0%. There was a huge increase in the supply of labour as elements of the working age population were encouraged to look for work. The participation rate rose to an all-time record high going back to 1978 of 65.9%. This is positive as it increases the nations productive capacity and keeps wage inflation at bay.
China
Speaking of inflation China is suffering (if that's the right word) from a jump in inflation from 3.6% to 4.4%. Industrial production was +13.1% from +13.3% and retail sales were up 18.6% from 18.8% (all y/y figures). Most of the increase in inflation was from food but their producer price index also jumped from 4.3% to 5%. This explained why they brought in measures for banks to increase reserves and curtail lending earlier in the week.
November 11, 2010
Consumer Sentiment
Westpac’s MI Consumer sentiment for November fell 5.3% in figures released yesterday. This comes as a result of the unexpected cash rate rise from the RBA last Tuesday in conjunction with the publicity of Banks raising their rates well above the cash rate. Housing Finance approvals (Sep) came in at +1.3%, however loan approvals to buy new homes fell, this is a mixed result for the property market, however the drop in new home financing may be a concern for the development sector.
The Peoples Bank of China surprised the market yesterday by announcing they had raised the reserve requirements for the four largest banks by 0.5%. The data released in China had increased the size of its trade surplus for October, placing extra pressure to further reduce the currency devaluation of the Yuan. Property price inflation (China) was down to its lowest point in 10 months, slowing to 8.6% and significantly below the predicted 9.1%. China’s increasing trade surplus could be a real positive for Australia, as growth in this area will continue to push demand for Australia’s mineral exports.
Plenty of data to take in today, with Unemployment for October (+20k jobs and Unemployment to 5% expected) to be released along with a variety of Chinese data, including CPI, PPI, retail sales, industrial production and fixed assets investment. The ECB will also publish it monthly report.
The Peoples Bank of China surprised the market yesterday by announcing they had raised the reserve requirements for the four largest banks by 0.5%. The data released in China had increased the size of its trade surplus for October, placing extra pressure to further reduce the currency devaluation of the Yuan. Property price inflation (China) was down to its lowest point in 10 months, slowing to 8.6% and significantly below the predicted 9.1%. China’s increasing trade surplus could be a real positive for Australia, as growth in this area will continue to push demand for Australia’s mineral exports.
Plenty of data to take in today, with Unemployment for October (+20k jobs and Unemployment to 5% expected) to be released along with a variety of Chinese data, including CPI, PPI, retail sales, industrial production and fixed assets investment. The ECB will also publish it monthly report.
November 10, 2010
NAB Business Conditions
Conditions dropped from 7 to 2, well below the average of 6. Confidence dropped tp 8 from 10 but this was closer to the long run average. This move suggests a small downtrend in economic activity and with the implications of the recent tightening not included in the survey one would imagine confidence will drop next month. There is quite a close correlation between GDP and this conditions survey.
Ireland
Foreign debt continued to worry last night. The 5-year Credit Default Swap spread blew out to a crisis high of 598 points before settling back to 567.
Australia’s Mid Year Economic and Fiscal Outlook (MYEFO) was delivered by Swan yesterday and is well reported and contained few surprises.
Ireland
Foreign debt continued to worry last night. The 5-year Credit Default Swap spread blew out to a crisis high of 598 points before settling back to 567.
Australia’s Mid Year Economic and Fiscal Outlook (MYEFO) was delivered by Swan yesterday and is well reported and contained few surprises.
November 09, 2010
ANZ Job Ads
Australia’s ANZ Job Ads were released yesterday for the October period with a rise of 0.6% for the month, and a 34.6%YoY increase. Although newspaper ads fell 0.3%, online ads jumped by 0.6% and continue the recent trend in this area. This indicator is a pretty upbeat measure of labour demand, however at some stage we should expect some flattening of employment in the months ahead. Employment figures are to be released on Thursday.
Concerns over debt have re-emerged in Europe again overnight; with the usual suspects Greece, Portugal and especially Ireland all suffering from renewed risk aversion. This was on the back of Irish Government plans to increase taxes and cut spending to the tune of $EU6bn, however the chances of this passing parliament are slim. Figures from Germany also didn’t help the cause, with Industrial Production falling to -0.8%, below the market forecast of +0.4%.
Today will see the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) released and should an extremely interesting read (for some). Swan has been suggesting that a strong AUD will erode company profits and tax revenue, however it must be noted that a strong economy is the reason for the strong dollar. We shouldn’t expect any material changes to the bottom line outlook.
Concerns over debt have re-emerged in Europe again overnight; with the usual suspects Greece, Portugal and especially Ireland all suffering from renewed risk aversion. This was on the back of Irish Government plans to increase taxes and cut spending to the tune of $EU6bn, however the chances of this passing parliament are slim. Figures from Germany also didn’t help the cause, with Industrial Production falling to -0.8%, below the market forecast of +0.4%.
Today will see the Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) released and should an extremely interesting read (for some). Swan has been suggesting that a strong AUD will erode company profits and tax revenue, however it must be noted that a strong economy is the reason for the strong dollar. We shouldn’t expect any material changes to the bottom line outlook.
November 08, 2010
RBA – Monetary Policy
The RBA’s quarterly Statement on Monetary policy returned a bullish document for interest rate watchers. It predicts that the local economy will continue to progress robustly post GFC towards the end of the forecast period, June 2013.
As predicted, near term inflation has been downgraded in the light of the most recent CPI figures, with Core CPI for the year to the Dec quarter at 2.5%, revised down from 2.75% previously. For December 2012, the forecast remains at 3% and the extended forecast for June 2013 is also at 3%. The statement also expects GDP to accelerate during the period, rising to 4% in Dec 2012. This predicted strength reflects an upward revision on the RBA’s forecasts in the terms of trade, as this would boost real incomes and spending within the economy.
For interest rates, these figures have assumed higher rates in line with market expectations, which are predicting a cash rate rise of 40bp this time next year. With inflation predicted to be at the top of the range at 3%, we believe the upside risks have further increased. It is our view that the market is still underestimating the chance of another rise in Feb, currently priced at around 33%. The only thing that may prevent this is the Banks doing the job of the RBA, by raising their rates above the cash rate.
US non-farm Payrolls for Oct rose 151k, significantly above the forecasted 60k, giving the markets a boost in Friday trading. Unemployment remained flat at 9.6%, and Private payrolls rose 159k, much higher than the predicted 80k. After the Fed’s QE2 announcement, the chairman Bernanke spoke on Friday, outlining, “Our first objective, the first goal that we have, is to meet our mandate to get price stability and maximum employment in the United States”. So far the markets have reacted positively to the most recent installment of Quantitative Easing, so for the near term the chance of another dose have reduced, however with payrolls growth still not expected to push unemployment lower, don’t rule out further easing in the future.
Yield Curve
In light of the RBA Statement and the recent cash rate hike it’s worth reviewing the yield curve, its shape and what it’s saying. One interesting new factor that is now impacting strongly on interest rate and yield curve expectations is the currency. Now at $1.01 against the US this will temper the RBA approach to using the cash rate to control the economy. As such, as mentioned above, the market is resisting factoring in too many hikes. The 10 year bond on Friday closed at 5.26% ( 20 odd points higher than a month ago) meaning the curve is only around .50% steep from cash to 10-years. With 3-year bonds at 5.09% there is only 35 odd points between cash and 3-years and 15 odd points between 3s and 10s. Basically the curve is very flat and there remains the distinct possibility that the 10 years will be below the cash rte this time next year once the RBA lifts cash a couple more times.
The market is expecting a rate hike in Feb and possibly one soon after. If there are two rises that would take cash to 5.25% but not for some time. Locking in for around 1-year (to 3-years) still remains attractive, as working in your favour is the fact that spreads are still high meaning you’re locking this anomaly in.
The development to watch however is the US turning a corner. Getting the massive numbers unemployed back to work will take some effort but the Fed will throw every thing it can at the problem. When the US turns therefore the risk for us will be growth stimulating our economy at a time when our inflation is pushing 3% as well as a massive sell off in bonds in the US. Each will translate into higher long and short-term rates in Australia. We’re at least a year off from this scenarios eventuating though.
As predicted, near term inflation has been downgraded in the light of the most recent CPI figures, with Core CPI for the year to the Dec quarter at 2.5%, revised down from 2.75% previously. For December 2012, the forecast remains at 3% and the extended forecast for June 2013 is also at 3%. The statement also expects GDP to accelerate during the period, rising to 4% in Dec 2012. This predicted strength reflects an upward revision on the RBA’s forecasts in the terms of trade, as this would boost real incomes and spending within the economy.
For interest rates, these figures have assumed higher rates in line with market expectations, which are predicting a cash rate rise of 40bp this time next year. With inflation predicted to be at the top of the range at 3%, we believe the upside risks have further increased. It is our view that the market is still underestimating the chance of another rise in Feb, currently priced at around 33%. The only thing that may prevent this is the Banks doing the job of the RBA, by raising their rates above the cash rate.
US non-farm Payrolls for Oct rose 151k, significantly above the forecasted 60k, giving the markets a boost in Friday trading. Unemployment remained flat at 9.6%, and Private payrolls rose 159k, much higher than the predicted 80k. After the Fed’s QE2 announcement, the chairman Bernanke spoke on Friday, outlining, “Our first objective, the first goal that we have, is to meet our mandate to get price stability and maximum employment in the United States”. So far the markets have reacted positively to the most recent installment of Quantitative Easing, so for the near term the chance of another dose have reduced, however with payrolls growth still not expected to push unemployment lower, don’t rule out further easing in the future.
Yield Curve
In light of the RBA Statement and the recent cash rate hike it’s worth reviewing the yield curve, its shape and what it’s saying. One interesting new factor that is now impacting strongly on interest rate and yield curve expectations is the currency. Now at $1.01 against the US this will temper the RBA approach to using the cash rate to control the economy. As such, as mentioned above, the market is resisting factoring in too many hikes. The 10 year bond on Friday closed at 5.26% ( 20 odd points higher than a month ago) meaning the curve is only around .50% steep from cash to 10-years. With 3-year bonds at 5.09% there is only 35 odd points between cash and 3-years and 15 odd points between 3s and 10s. Basically the curve is very flat and there remains the distinct possibility that the 10 years will be below the cash rte this time next year once the RBA lifts cash a couple more times.
The market is expecting a rate hike in Feb and possibly one soon after. If there are two rises that would take cash to 5.25% but not for some time. Locking in for around 1-year (to 3-years) still remains attractive, as working in your favour is the fact that spreads are still high meaning you’re locking this anomaly in.
The development to watch however is the US turning a corner. Getting the massive numbers unemployed back to work will take some effort but the Fed will throw every thing it can at the problem. When the US turns therefore the risk for us will be growth stimulating our economy at a time when our inflation is pushing 3% as well as a massive sell off in bonds in the US. Each will translate into higher long and short-term rates in Australia. We’re at least a year off from this scenarios eventuating though.
November 05, 2010
QE2 Reaction
The FED’s $US600b bond repurchase program has had a positive affect over the last 24 hours, as stock markets globally were significantly higher (main board Euro shares up 2%, Dow & S&P 500 up 1.5%). All the ‘risk’ assets have been the biggest improvers as confidence has increased. As a result, commodity currencies such as the AUD (still above 1.00) and NZD are up, the ASX SPI futures are 1.6% higher this morning and NYMEX Crude is 2.4% higher. Other news from overnight saw The Bank of England and the European Central Bank leave rates unchanged at 0.5% and 1% respectively.
Yesterday in Australia, Retail Sales for September rose 0.3%, the same as in August, and volumes were up 0.7% for Q3. This was a little more subdued than expected. The Trade balance for September was a little lower than that in August with a surplus of $A1.76b, a fall from $A2.4b.
All eyes today will be on the RBA’s quarterly Statement on Monetary policy, especially in regards to their latest forecasts on inflation and growth. We are expecting a slight downgrade in inflation predictions for the near and medium term. If the RBA does not reduce the inflation forecast for 2011 and 2012 then they have assumed stronger growth going forward which would offset the latest monetary tightness. In Summary, any shading of inflation forecast does not indicate a more relaxed policy outlook, as the prediction is based on higher rates and AUD, so if growth is upgraded, further tightening will be required.
The all-important US non-farm payrolls are to be released tonight, with the market looking for headline payrolls to rise 60k, private payrolls to rise by 80k and unemployment to remain steady at 9.6%.
Yesterday in Australia, Retail Sales for September rose 0.3%, the same as in August, and volumes were up 0.7% for Q3. This was a little more subdued than expected. The Trade balance for September was a little lower than that in August with a surplus of $A1.76b, a fall from $A2.4b.
All eyes today will be on the RBA’s quarterly Statement on Monetary policy, especially in regards to their latest forecasts on inflation and growth. We are expecting a slight downgrade in inflation predictions for the near and medium term. If the RBA does not reduce the inflation forecast for 2011 and 2012 then they have assumed stronger growth going forward which would offset the latest monetary tightness. In Summary, any shading of inflation forecast does not indicate a more relaxed policy outlook, as the prediction is based on higher rates and AUD, so if growth is upgraded, further tightening will be required.
The all-important US non-farm payrolls are to be released tonight, with the market looking for headline payrolls to rise 60k, private payrolls to rise by 80k and unemployment to remain steady at 9.6%.
November 04, 2010
FED begins QE2
The FED last night released its policy plans to further loosen monetary policy and attempt to kick start the ailing US economy. The Federal Open Markets Committee announced additional Quantitative Easing (QE2) measures to the tune of $US600b in the purchase of US treasury bonds, while continuing to re-invest in maturing mortgage backed and other securities. In the statement released with the announcement, the Fed elevated the importance of inflation as a measure of stimulus, as fears of deflation continue. If QE2 doesn’t work, we expect the fed chairman Bernanke to push for QE3 and QE4.
The measures in the US helped move the AUD through parity to reach a high of 1.006. It's still over 1.00 at time of this email. The US bonds are remain significantly lower than yields in Australia 2-years .034%, 10-years 2.55%.
Today in the markets, Retail Trade and the Trade Balance will be released locally and may raise a few eyebrows if the numbers don’t come in as expected. Tonight brings further announcements from central banks from Europe, as the Bank of England and the European Central Bank will release policy announcements.
The measures in the US helped move the AUD through parity to reach a high of 1.006. It's still over 1.00 at time of this email. The US bonds are remain significantly lower than yields in Australia 2-years .034%, 10-years 2.55%.
Today in the markets, Retail Trade and the Trade Balance will be released locally and may raise a few eyebrows if the numbers don’t come in as expected. Tonight brings further announcements from central banks from Europe, as the Bank of England and the European Central Bank will release policy announcements.
November 03, 2010
Rate Hike
The RBA surprised some commentators yesterday more than Americain with it's breezy run past So You Think.
The rate hike was essentially a preemptive strike against perceived inflationary pressures. The RBA stated that the downward move in inflation had likely come to an end and that with a 'terms of trade' shock on the way from our mining boom that inflation would move up mid-term. No further deterioration in global financial markets has also enabled them to re-focus on domestic issues and introduce the tightening that I suspect they've been planning for some time.
The next move is open to some speculation. The statement concluded with 'an early, modest tightening of monetary policy was prudent'. The use of the word modest implies that it may be a one off for the moment. Many commentators are pointing to February rather than December for the next move. With CBA, and possibly other banks, doing a bit of the RBA's work for them by adding a little extra to yesterday's 25 points I can't disagree.
With the FOMC to announce further Quatitative Easing measures to stimulate the US economy tonight expect the USD to waken and for the AUD to move solidly through parity. It flirted with it overnight. Also of note is the RBA Statement on Monetary Policy due Friday.
The rate hike was essentially a preemptive strike against perceived inflationary pressures. The RBA stated that the downward move in inflation had likely come to an end and that with a 'terms of trade' shock on the way from our mining boom that inflation would move up mid-term. No further deterioration in global financial markets has also enabled them to re-focus on domestic issues and introduce the tightening that I suspect they've been planning for some time.
The next move is open to some speculation. The statement concluded with 'an early, modest tightening of monetary policy was prudent'. The use of the word modest implies that it may be a one off for the moment. Many commentators are pointing to February rather than December for the next move. With CBA, and possibly other banks, doing a bit of the RBA's work for them by adding a little extra to yesterday's 25 points I can't disagree.
With the FOMC to announce further Quatitative Easing measures to stimulate the US economy tonight expect the USD to waken and for the AUD to move solidly through parity. It flirted with it overnight. Also of note is the RBA Statement on Monetary Policy due Friday.
November 02, 2010
Rates Decision
Figures released yesterday in Australia saw the TD-MI Inflation Gauge rise to 0.3% for the month of October, after a 0.2% rise is September. ABS House prices for Q3 were also higher, up 0.1% and above the median forecast of 0%. China’s PMI for October jumped to 54.7 from 53.8 and above the forecasted 53.8, reassuring the market that China’s manufacturing industry remains strong and will continue to demand Australia’s exports.
Today in Australia, for anyone watching, the RBA meeting outcome will be announced at 2.30pm. Markets are currently expecting a 26% chance of a hike, however we think it is slightly higher, around 45%. Recent data hasn’t been supportive of a hike, including last weeks CPI and Credit figures, however medium term inflation risks, although downgraded, continue to exist.
With the AUD still near record highs, we still expect the RBA to hold. Just bear in mind that the Reserve Bank is looking to move at some stage, and every month we move closer to the next rate hike. They surprised the market last month, and don’t be startled if they pull the trigger.
In the Cup, So You Think has moved in very short to $3.40, and Shocking, the $4.50 favourite 2 weeks ago has blown out to $11.50 after drawing barrier 24. Don't be surprised if the old warhorse Zipping runs well as the 9 year old is always around the mark and is in career best form, a must for the trifectas. Of the internationals, Americain appears the horse with the most class and is paying $12.00. Precedence may present another bargain, paying $22.60 and another good option for an each way bet.
Curve Securities Picks:
1. So You Think
2. Shocking
3.Americain
4. Precedence (Roughie)
Today in Australia, for anyone watching, the RBA meeting outcome will be announced at 2.30pm. Markets are currently expecting a 26% chance of a hike, however we think it is slightly higher, around 45%. Recent data hasn’t been supportive of a hike, including last weeks CPI and Credit figures, however medium term inflation risks, although downgraded, continue to exist.
With the AUD still near record highs, we still expect the RBA to hold. Just bear in mind that the Reserve Bank is looking to move at some stage, and every month we move closer to the next rate hike. They surprised the market last month, and don’t be startled if they pull the trigger.
In the Cup, So You Think has moved in very short to $3.40, and Shocking, the $4.50 favourite 2 weeks ago has blown out to $11.50 after drawing barrier 24. Don't be surprised if the old warhorse Zipping runs well as the 9 year old is always around the mark and is in career best form, a must for the trifectas. Of the internationals, Americain appears the horse with the most class and is paying $12.00. Precedence may present another bargain, paying $22.60 and another good option for an each way bet.
Curve Securities Picks:
1. So You Think
2. Shocking
3.Americain
4. Precedence (Roughie)
November 01, 2010
Big Week Ahead
On Friday last week, Australia RBA Credit (Sep) rose 0.1%, which was significantly below the forecast of 0.3% and is a very weak result considering the relative strength of the local sector. Business credit was equally as bad, down 0.9% after a fall in August of 0.7%. House prices were slightly higher, with a 0.2% jump in September, after a fall of 0.2% in August.
Overseas markets on Friday saw US GDP rise by an annual rate of 2% for Q3, which was in line with expectations after a rise of 1.7% (annualised) in Q2. European CPI for October was up 1.9%, slightly higher than the forecasted 1.8%, and EC Unemployment for October was 10.1%, the same as September and as expected.
A big week in the markets ahead with the RBA set to announce the rates decision on Tuesday, with the markets currently predicting a 22% chance of a hike. Other news this week in Australia will see Retail Trade, Building Approvals, Trade Balance and the RBA’s Statement on Monetary policy to be released on Friday.
In Offshore news this week, the markets will be closely watching the announcement of the US Federal Reserve, with the expectation that they will reveal a substantial easing in monetary policy with more extensive Quantitative Easing. US Non-farm Payrolls for October are also to be released with unemployment expected to come in unchanged at 9.6%. Also this week, central banks in the UK, Eurozone, Japan and India are meeting.
Overseas markets on Friday saw US GDP rise by an annual rate of 2% for Q3, which was in line with expectations after a rise of 1.7% (annualised) in Q2. European CPI for October was up 1.9%, slightly higher than the forecasted 1.8%, and EC Unemployment for October was 10.1%, the same as September and as expected.
A big week in the markets ahead with the RBA set to announce the rates decision on Tuesday, with the markets currently predicting a 22% chance of a hike. Other news this week in Australia will see Retail Trade, Building Approvals, Trade Balance and the RBA’s Statement on Monetary policy to be released on Friday.
In Offshore news this week, the markets will be closely watching the announcement of the US Federal Reserve, with the expectation that they will reveal a substantial easing in monetary policy with more extensive Quantitative Easing. US Non-farm Payrolls for October are also to be released with unemployment expected to come in unchanged at 9.6%. Also this week, central banks in the UK, Eurozone, Japan and India are meeting.
Subscribe to:
Posts (Atom)
