There were no surprises from the RBA minutes yesterday, as the board regarded the setting as appropriate for the time being. The RBA considers the current policy as being mildly restrictive, as subsequent increases by the banks after the October rise, in conjunction with the exchange rate have put the brakes on the economy for the time being. With the Global economy moving at a modest pace and our terms of trade expected to continue rising, Australia’s medium term scenario still looks to be on track. The downsides risks were limited to the evolving debt crisis in Europe.
Looking ahead, we expect the RBA to remain on hold until further inflationary signals evolve. A strong tightening bias still remains, so look for a rise just before the middle of next year.
For a copy of the RBA minutes, click here.
Treasury Secretary Dr Ken Henry announced his retirement yesterday after 10 years in the job, and serving both sides of the political persuasion. Henry was instrumental in the policy response for the GFC, with his Go early; go hard; go household’s response. Dr Martin Parkinson has been appointed as the new Treasury Secretary, and will begin in May.
Today in Australia will see the Westpac-MI Lending Index.
December 23, 2010
December 22, 2010
RBA Minutes & Yield Curve Analysis
Minutes Preview:
The December RBA Board minutes are to be released today. We are expecting that the decision to keep on hold was relatively clear cut, considering the close decision to rise in November and the banks raising rates by more than the cash rate. As stated recently by various RBA board members, we are expecting the minutes to hint that the RBA are comfortably on hold for now.
Yield Curve Analysis:
While the shorter end of the yield curve has oscillated up and down over the past month the longer end - 10 years - has continued a steady trend that's been going for a number of months.
Much of the upward move in long yields is due simply to them retracing a strong rally that had driven long yields to significantly low levels in line with dramatic downward moves in long yields in the States. Much of the move there was in anticipation of aggressive quantitative easing expectations, which while delivered, were not quite as bold as some in the market expected.
Another impact on the longer end is the fact that monetary policy may be in a pausing state for longer than was expected last month. Most commentators have moved their time-line for the next tightening out to around May. Last month expectations were for a February tightening and the delay gives inflation a greater chance to creep into the economy. This increased risk is simply being priced into the longer end of the curve.
The move has opened up good possibilities in the middle parts of the curve though. AMP Bank for instance is offering 5 year deposit rates just under 7.50% and as the 3 year part of the curve has moved up around 15 points in the last month there is starting to be some value appearing in this area. My preference though is still to pick off specials in the 6 mth to 18 mth part of the curve. Again, with spreads still reasonable and a tightening not expected for 4 to 5 months locking in decent rates in this part of the curve makes sense.
The December RBA Board minutes are to be released today. We are expecting that the decision to keep on hold was relatively clear cut, considering the close decision to rise in November and the banks raising rates by more than the cash rate. As stated recently by various RBA board members, we are expecting the minutes to hint that the RBA are comfortably on hold for now.
Yield Curve Analysis:
While the shorter end of the yield curve has oscillated up and down over the past month the longer end - 10 years - has continued a steady trend that's been going for a number of months.
Much of the upward move in long yields is due simply to them retracing a strong rally that had driven long yields to significantly low levels in line with dramatic downward moves in long yields in the States. Much of the move there was in anticipation of aggressive quantitative easing expectations, which while delivered, were not quite as bold as some in the market expected.
Another impact on the longer end is the fact that monetary policy may be in a pausing state for longer than was expected last month. Most commentators have moved their time-line for the next tightening out to around May. Last month expectations were for a February tightening and the delay gives inflation a greater chance to creep into the economy. This increased risk is simply being priced into the longer end of the curve.
The move has opened up good possibilities in the middle parts of the curve though. AMP Bank for instance is offering 5 year deposit rates just under 7.50% and as the 3 year part of the curve has moved up around 15 points in the last month there is starting to be some value appearing in this area. My preference though is still to pick off specials in the 6 mth to 18 mth part of the curve. Again, with spreads still reasonable and a tightening not expected for 4 to 5 months locking in decent rates in this part of the curve makes sense.
December 20, 2010
Ireland Downgrade
Moody’s rating agency downgraded Ireland 5 notches on Friday night, moving them from Aa2 to Baa1. Fitch had previously downgraded Ireland 3 notches, so the big bump from Moody’s came as a bit of a surprise to the market. The EU/IMF bailout package appears to be the culprit, along with the continued rise in unemployment.
The key scheduled release this week will be the RBA minutes on Tuesday. As expected, the bank decided to keep rates unchanged last month, as numerous indicators had suggested that short-term inflation had been kept in check. The minutes may provide some clues to the market as to when the next raise will be. Currently, most forecasters have moved their predictions from February to some time in the middle of next year, however we believe the RBA will require more information before making their decision in 2011. The minutes may provide the RBA’s concern about medium term inflation and capacity constraints, which are likely to be the instigators of another rise.
The key scheduled release this week will be the RBA minutes on Tuesday. As expected, the bank decided to keep rates unchanged last month, as numerous indicators had suggested that short-term inflation had been kept in check. The minutes may provide some clues to the market as to when the next raise will be. Currently, most forecasters have moved their predictions from February to some time in the middle of next year, however we believe the RBA will require more information before making their decision in 2011. The minutes may provide the RBA’s concern about medium term inflation and capacity constraints, which are likely to be the instigators of another rise.
December 18, 2010
RBA Bulletin
The RBA bulletin released yesterday was a fascinating paper on China’s Steel industry, and how this affects Australia. The Steel industry has been growing rapidly at around 20% over the last decade, with 90% of steel made from iron ore and coal. This means China needs to import large amounts of these commodities, as their own reserves are of low grade and located in inaccessible locations. The RBA concluded by stating steel production is likely to continue rising over the next few decades, which will underpin strong demand for Australia’s resources.
There is so significant news events scheduled for today.
There is so significant news events scheduled for today.
December 17, 2010
Consumer Sentiment
Consumer Sentiment for Australia was virtually unchanged for December, after falling in November on the back of the rate rise. This is a little disappointing considering last weeks strong employment data, which shows the Australian economy is sailing along smoothly. Skilled Vacancies fell by 2.8% in December, which indicates that employment growth may slightly ease in the months ahead.
Moodys came out and stated that Spain’s Aa1 credit rating may be under pressure, as they are vulnerable to funding stress. Spain may be subject to a downgrade of several notches.
Today, the Westpac-Melbourne Institute will release consumer inflationary ex
Moodys came out and stated that Spain’s Aa1 credit rating may be under pressure, as they are vulnerable to funding stress. Spain may be subject to a downgrade of several notches.
Today, the Westpac-Melbourne Institute will release consumer inflationary ex
December 16, 2010
NAB Business Survey
The NAB Business Survey for November was released yesterday, with business confidence declining for the third successive month. The figure was down 2 points to +6, slightly below the long-term average of +7. Despite this, the mining and construction industries have significantly increased their confidence levels as the prices for these sectors are booming. The Retail and Wholesale industries appear to be the hardest hit, as shoppers during the Christmas season have been passive to date.
The Fed announced last night that it would leave the 0.25% cash rate steady, while continuing on the current course of Quantitative Easing. The recovery still isn’t fast enough to dent unemployment, with this figure remaining constant at around 9-10%. In positive news for the US, Retail Sales came in higher than expected at 0.8%, paving a way for an encouraging Q4 growth number.
The Westpac-Melbourne Institute Consumer sentiment for December is released today, while skilled vacancies will be uncovered by the ABS. The UK will reveal employment numbers, while the US CPI figure is due.
The Fed announced last night that it would leave the 0.25% cash rate steady, while continuing on the current course of Quantitative Easing. The recovery still isn’t fast enough to dent unemployment, with this figure remaining constant at around 9-10%. In positive news for the US, Retail Sales came in higher than expected at 0.8%, paving a way for an encouraging Q4 growth number.
The Westpac-Melbourne Institute Consumer sentiment for December is released today, while skilled vacancies will be uncovered by the ABS. The UK will reveal employment numbers, while the US CPI figure is due.
December 15, 2010
Senate Inquiry into Banking Competition
Glenn Stevens speech at the Senate inquiry into banking competition was very subdued, as he was extremely careful in the words he used. As such, there were no breaking announcements that we are to be concerned with, other than his belief that the banking market is much more competitive than the mid 90’s.
There has been some renewal of risk appétit in the markets this week, as China didn’t raise their interest rates on the back of solid performance data over the weekend. As a result, the long end of the yield curve has steepened, as the positive activity data will be good news for the miners along with global growth prospects.
The NAB Business survey is released today, and this measure can be a good indicator to gauge the confidence of the business sector. The big news in this session will be the US Retail figures tonight, as we continue to look for positive signs of a recovery.
There has been some renewal of risk appétit in the markets this week, as China didn’t raise their interest rates on the back of solid performance data over the weekend. As a result, the long end of the yield curve has steepened, as the positive activity data will be good news for the miners along with global growth prospects.
The NAB Business survey is released today, and this measure can be a good indicator to gauge the confidence of the business sector. The big news in this session will be the US Retail figures tonight, as we continue to look for positive signs of a recovery.
December 14, 2010
Banking Reforms
Treasurer Swan announced his eagerly awaited reforms to bring competition to the banking system. The key points that are relevant to our space are as follows:
Financial Claims Scheme (FCS) (retail deposit guarantee). This has been made permanent but this is no surprise as that was always the intention. It's disappointing that they are still yet to decide what the cap will be. At this stage nothing has changed therefore and $1M is still only guaranteed up until Oct 12 2011. They are reviewing the cap and I imagine they will announce the final level when their 'Government Protected' logo is finalised in early 2011.
The government intends to launch an education campaign next year to highlight that a deposit with a mutual / second tier bank is as safe as with a big bank as it's prudential standing is managed by APRA and deposits are covered by the FCS. As part of this campaign they will introduce a logo. The one on the left has been presented for review with launch date to be early 2011.
Covered Bonds: These are bonds that are backed by a set package of assets. The issue in the past is that it contravenes the Banking Act which states that depositors would have to paid out in the event of a collapse before anyone else. With Covered Bonds the investors have access to the assets linked to the bonds prior to depositors. The Banking Act will therefore have to be re-written so may be some time coming. All ADIs will be able to issue Covered Bonds but this development is likely to favour the larger banks. The smaller organisations may pool assets to create an issue which would have an independent - likely quite high - credit rating so they may be a reasonable alternative to a long dated term deposit down the track.
Name Change To Bank: Some mutuals, who currently meet particular capital adequacy levels, will be able to apply to call themselves a Bank. There are about 20 such organisations who currently qualify. The intention here is for them to be able to capitalise on the perception that a 'Bank' is stronger. Very few mutuals have gone down the very expensive route of 'buying' a credit rating. This is what most investors in our space go off so being an unrated bank won't make much difference in my opinion.
Other measures have been well documented in the press but are not so relevant to the wholesale deposit space.
The full package can be found at http://www.treasury.gov.au/banking
Other News:
The RBA Governor is speaking on banking regulation today, and his comments will be closely watched on the back of Swan’s release yesterday. The RBA is a part of the Council of Financial regulators, who are working with the Government in its review of the $1m guarantee. Steven’s opinion on this issue may be influential in the outcome of the Governments decision.
Ireland was downgraded three notches by Fitch last week to BBB+ from A+. This came on the back of mounting costs that would be needed to rescue the banking system, along with the sizable rescue package.
China has modestly tightened their monetary policy setting, applying further bank reserve requirements by 0.5%. This came on the back several indicators showing that China is once again booming, as exports increased and CPI rose to 5.1% year on year. This is further good news for Australia, as China is virtually the key driver of our economy with the continued demand for our commodities.
As mentioned, Glenn Stevens is speaking on banking policy today and the RBA’s Guy Debelle is giving a speech at a banking conference on Wednesday. In the US, the FOMC rate announcement will be closely watched, along with Retail Sales on Tuesday night. Euro zone Employment and Industrial production will be the key data out of Europe this week.
Financial Claims Scheme (FCS) (retail deposit guarantee). This has been made permanent but this is no surprise as that was always the intention. It's disappointing that they are still yet to decide what the cap will be. At this stage nothing has changed therefore and $1M is still only guaranteed up until Oct 12 2011. They are reviewing the cap and I imagine they will announce the final level when their 'Government Protected' logo is finalised in early 2011.
The government intends to launch an education campaign next year to highlight that a deposit with a mutual / second tier bank is as safe as with a big bank as it's prudential standing is managed by APRA and deposits are covered by the FCS. As part of this campaign they will introduce a logo. The one on the left has been presented for review with launch date to be early 2011.
Covered Bonds: These are bonds that are backed by a set package of assets. The issue in the past is that it contravenes the Banking Act which states that depositors would have to paid out in the event of a collapse before anyone else. With Covered Bonds the investors have access to the assets linked to the bonds prior to depositors. The Banking Act will therefore have to be re-written so may be some time coming. All ADIs will be able to issue Covered Bonds but this development is likely to favour the larger banks. The smaller organisations may pool assets to create an issue which would have an independent - likely quite high - credit rating so they may be a reasonable alternative to a long dated term deposit down the track.
Name Change To Bank: Some mutuals, who currently meet particular capital adequacy levels, will be able to apply to call themselves a Bank. There are about 20 such organisations who currently qualify. The intention here is for them to be able to capitalise on the perception that a 'Bank' is stronger. Very few mutuals have gone down the very expensive route of 'buying' a credit rating. This is what most investors in our space go off so being an unrated bank won't make much difference in my opinion.
Other measures have been well documented in the press but are not so relevant to the wholesale deposit space.
The full package can be found at http://www.treasury.gov.au/banking
Other News:
The RBA Governor is speaking on banking regulation today, and his comments will be closely watched on the back of Swan’s release yesterday. The RBA is a part of the Council of Financial regulators, who are working with the Government in its review of the $1m guarantee. Steven’s opinion on this issue may be influential in the outcome of the Governments decision.
Ireland was downgraded three notches by Fitch last week to BBB+ from A+. This came on the back of mounting costs that would be needed to rescue the banking system, along with the sizable rescue package.
China has modestly tightened their monetary policy setting, applying further bank reserve requirements by 0.5%. This came on the back several indicators showing that China is once again booming, as exports increased and CPI rose to 5.1% year on year. This is further good news for Australia, as China is virtually the key driver of our economy with the continued demand for our commodities.
As mentioned, Glenn Stevens is speaking on banking policy today and the RBA’s Guy Debelle is giving a speech at a banking conference on Wednesday. In the US, the FOMC rate announcement will be closely watched, along with Retail Sales on Tuesday night. Euro zone Employment and Industrial production will be the key data out of Europe this week.
December 11, 2010
Strong Employment Growth
Employment figures released yesterday were very strong, with 54, 600 new jobs being created, well above the market forecast of 20k. This forced the unemployment rate to drop from 5.4% to 5.2% with the participation rate rising to a record 66.1% from 65.9%. The promising figure for workers was the 55.1k new full time jobs created, while part-time employment fell 4k. All these numbers account for an annual pace of growth in employment of 3.7%
The strong labour market will once again highlight the concerns the RBA may have leading into next year. With strong labour demand, wages pushing higher, and the anticipated growth in investment over the medium term, we will be hitting the limits of spare capacity within the economy. Despite the recent soft data, the upside risks to wages and price figures have definitely materialised, confirming that the RBA’s next move will be a hike.
No news in Australia today, however Chinese November Trade figures are released, which may be of some interest. China is also releasing CPI tomorrow and other key monthly data amid speculation of further monetary policy tightening.
The strong labour market will once again highlight the concerns the RBA may have leading into next year. With strong labour demand, wages pushing higher, and the anticipated growth in investment over the medium term, we will be hitting the limits of spare capacity within the economy. Despite the recent soft data, the upside risks to wages and price figures have definitely materialised, confirming that the RBA’s next move will be a hike.
No news in Australia today, however Chinese November Trade figures are released, which may be of some interest. China is also releasing CPI tomorrow and other key monthly data amid speculation of further monetary policy tightening.
December 10, 2010
RBA Assistant Governor Speech
The RBA assistant Governor Phillip Lowe spoke last night at the ABE dinner in Sydney. His tone was quite consistent with the RBA statement released on Tuesday, which stated the Reserve Bank are reasonably comfortable with the current monetary policy settings. The key point that we took from his speech was the statement that policy is now ‘slightly on the restrictive side’, which we could interpret as meaning the next hike could be a while away (Feb hike now unlikely). He mentioned that high levels of household savings would help curb inflation as a period of high levels of business investment lie ahead. When speaking of the November hike, Lowe said the decision was made on the basis of medium term outlook on inflation, confirming that a tightening bias remains.
For a link to the speech click HERE.
Employment for November is released today, and we are expecting a 30k increase in jobs and unemployment to fall back to 5.1% (5.4% for October), with a slight drop in the participation rate.
For a link to the speech click HERE.
Employment for November is released today, and we are expecting a 30k increase in jobs and unemployment to fall back to 5.1% (5.4% for October), with a slight drop in the participation rate.
December 08, 2010
Cash Rate Unchanged
The RBA left the cash rate unchanged at 4.75% after their meeting yesterday. In their statement they mentioned worries in Europe returning on the one side while China, India and our terms of trade being positive on the other side. It seems as well that consumer spending is becoming more cautious with a noticeable increase in savings. The exchange rate was also mentioned as a factor assisting the containment of inflation.
For a link to the statement click HERE
Below is the concluding paragraph:
Following the Board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average. The Board views this setting of monetary policy as appropriate for the economic outlook.
For a link to the statement click HERE
Below is the concluding paragraph:
Following the Board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average. The Board views this setting of monetary policy as appropriate for the economic outlook.
December 07, 2010
RBA Meeting
The RBA is meeting today and a no change outcome seems to be a forgone conclusion. Inflation concerns over the last few months have lowered with recent figures suggesting that CPI and growth may have initially slowed, at least in the short term. A tightening bias still remains as capacity constraints will force the RBA to hike sometime next year. The minutes from the meeting will be the best indicator as to when we may expect the next raise.
ANZ Job Ads were released yesterday, indicating that labour demand continued to accelerate. Job ads in November rose 2.9%, and continue the trend of new jobs created post-GFC. Thursdays labour force report for November will be the key indicator on overall jobs growth and unemployment for the past month.
The RBA decision is the only key data released today.
ANZ Job Ads were released yesterday, indicating that labour demand continued to accelerate. Job ads in November rose 2.9%, and continue the trend of new jobs created post-GFC. Thursdays labour force report for November will be the key indicator on overall jobs growth and unemployment for the past month.
The RBA decision is the only key data released today.
December 06, 2010
December Rates Decision
The RBA meets on Tuesday, and it is extremely unlikely that they will move. Glenn Stevens last week in his parliamentary speech strongly indicated his view that monetary policy was ‘appropriate’ for now. The recent double hit by the banks (0.25% from the RBA plus the extra from the Majors) appears to have hit the pocket, with retailers concerned about the lack of Christmas spending. NAB has moved their forecast of the next cash rise out from February to sometime mid 2011, as our growth recovery may be slow until resource investment kicks in.
The US non-farm payrolls were disappointing on Friday night, after rising just 39k, significantly lower than the 172k we saw in October. This saw unemployment at 9.8%, which is the seven-month high. At some respite, the figures may point to some improvement in the coming months, with aggregate hours up 1.9% (annualised), which should lead to more output gains in Q4.
This week highlights will be tomorrow’s rates decision along with the monthly employment (November) report due out Thursday.
The US non-farm payrolls were disappointing on Friday night, after rising just 39k, significantly lower than the 172k we saw in October. This saw unemployment at 9.8%, which is the seven-month high. At some respite, the figures may point to some improvement in the coming months, with aggregate hours up 1.9% (annualised), which should lead to more output gains in Q4.
This week highlights will be tomorrow’s rates decision along with the monthly employment (November) report due out Thursday.
December 02, 2010
Soft GDP Figure
Q3 GDP for Australia came in at +0.2%, below the market forecast of 0.5%. This accounts for an annual pace of 2.7% which has been lowered from the RBA’s forecast of 3% earlier in the year. If you hadn’t already ruled out the chance of a rise in December, you can now as a result of the negative sentiment from recent figures along with the debt concerns of Europe.
Figures released last night saw global manufacturing higher for November, with the JP Morgan Global Manufacturing PMI rising from 53.7 to 53.9. Unfortunately for Australia our PMI was down, coming in at 47.6, and below 50 for the fourth consecutive month.
There was speculation that the European monetary authorities might step up support for periphery sovereign debt, which fuelled investor risk appetite and further improved global growth sentiment. Investor support was shown with Portugal selling $EU500m of 350 day bills. In bad news, Portugal was put on ‘Credit Watch’ by S&P, pointing to a likely downgrade.
Swan is likely to introduce new Banking measures within the next couple of weeks. It will be interesting to see what his plans are for the Government Guarantee, as the continued ‘bashing’ of the big four may see it extended. We will keep you informed of the developments as they unfold.
Retail Trade figures are to be released in Australia today. The ECB’s Trichet is also giving a press conference post the most recent ECB meeting.
Figures released last night saw global manufacturing higher for November, with the JP Morgan Global Manufacturing PMI rising from 53.7 to 53.9. Unfortunately for Australia our PMI was down, coming in at 47.6, and below 50 for the fourth consecutive month.
There was speculation that the European monetary authorities might step up support for periphery sovereign debt, which fuelled investor risk appetite and further improved global growth sentiment. Investor support was shown with Portugal selling $EU500m of 350 day bills. In bad news, Portugal was put on ‘Credit Watch’ by S&P, pointing to a likely downgrade.
Swan is likely to introduce new Banking measures within the next couple of weeks. It will be interesting to see what his plans are for the Government Guarantee, as the continued ‘bashing’ of the big four may see it extended. We will keep you informed of the developments as they unfold.
Retail Trade figures are to be released in Australia today. The ECB’s Trichet is also giving a press conference post the most recent ECB meeting.
December 01, 2010
Building Approvals and Private Sector Credit
Data yesterday in Australia saw Building approvals 9.3% higher for October, which was well above the 1.4% median. Private sector credit came in relatively flat at +0.1% (0.2%) median and house prices were also slightly higher with a rise of 0.3% for October. All of this data is important going into today’s GDP release as they represent inputs into overall GDP. With recent data coming in weaker than predicted, NAB are forecasting a growth figure of around 0.3% for the quarter.
The Fiscal health concerns of Europe continued overnight. Rumors that S&P were going to downgrade France’s Credit Rating were rife along with comments that several large German banks were having liquidity issues. Comments from the Bank of Portugal that banks could face ‘intolerable risk’ if the country failed to consolidate its public finances further hit sentiment.
As mentioned, Q3 GDP is the big-ticket item released today. We will also see manufacturing indices for Australia, China, UK, Europe and the US.
The Fiscal health concerns of Europe continued overnight. Rumors that S&P were going to downgrade France’s Credit Rating were rife along with comments that several large German banks were having liquidity issues. Comments from the Bank of Portugal that banks could face ‘intolerable risk’ if the country failed to consolidate its public finances further hit sentiment.
As mentioned, Q3 GDP is the big-ticket item released today. We will also see manufacturing indices for Australia, China, UK, Europe and the US.
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