The countdown to a decision on raising the debt ceiling ticks on with still no resolution. It’s hard to believe that they won’t come up with a result that will avoid sending global financial markets into turmoil but markets are starting to consider the risk a little more real now.
In Australia, major bank economists are divided on whether the RBA’s next move is up or down. Westpac is down, ANZ is up. With consumption languishing in a dire state the more probable result at the next board meeting is for them to remain sitting on their hands. The strong AUD will also enable then to pause and with risk still evident in other parts of the world maintaining a wait and see approach, one would think, is the thing to do.
July 29, 2011
July 28, 2011
The "Cautious Consumer" and the Booming Terms of Trade...a Tale of Two Cities
RBA Governor Glenn Stevens spoke yesterday tackling the issue of the decrease in general consumer confidence through analysing household consumption and saving patterns. He noted the period from the early 90s to 2000 was characterised by a greater level of perceived consumer prosperity through a cycle of rising house prices, increased leverage and strong consumption growth. Amid beign global economic conditions this cycle contributed to strong local economic expansion. "Australia is in the midst of a once-in-a-century event in our terms of trade" which has effectively propped up the domestic economy in recent times of global instability. Stevens remains relatively optimistic on the household sector's ability to move towards a more "normal" level of growth over time.
Todays highly anticipated June Quarter CPI figure has largely been heralded to be within the RBA's underlying rate comfort zone despite an expected large increase in the headline number. A shock to the upside in the underlying rate will trigger a strong market reaction especially given the current assumptions of rate cuts priced into interest rates.
International markets remain expectant towards the advances on the US debt issue despite Obama's threat to veto House Speaker John Boehners two step plan. The IMF director speech yesterday emphasised the importance of reaching an agreement before the looming August 2 deadline, as well as the importance of following the implementation of economic agreements made by Greece. Congress meets tomorrow to vote on the on the plan.
Todays highly anticipated June Quarter CPI figure has largely been heralded to be within the RBA's underlying rate comfort zone despite an expected large increase in the headline number. A shock to the upside in the underlying rate will trigger a strong market reaction especially given the current assumptions of rate cuts priced into interest rates.
International markets remain expectant towards the advances on the US debt issue despite Obama's threat to veto House Speaker John Boehners two step plan. The IMF director speech yesterday emphasised the importance of reaching an agreement before the looming August 2 deadline, as well as the importance of following the implementation of economic agreements made by Greece. Congress meets tomorrow to vote on the on the plan.
July 26, 2011
Moodys speaks
A busy day yesterday for ratings agency Moody's beginning with a downgrade of Greece (Caa1 to Ca) outlook "Developing". The widely expected action also noted the continuing uncertainty surrounding the exact values of securities to be received under the debt exchange program however Moodys acknowledged the process is a postive step in reducing the possibility of further "contagion risk" amongst neighbouring Greek nations.
Moody's last night also provided a little more insight into the Basel III requirements for "globally systemically important banks". It listed 28 G-SIBs however did not include the 4 major banks among the list. The imposition of being a G-SIB involves added capital requirements which could lower a banks return on equity however also give them a higher credit outlook. Macquarie Bank is the only Australian bank mentioned within Moody's probable G-SIB list.
In the US overnight the Republicans versus the Democrats battle continues as both parties announced varying options to counter the mounting US Debt Crisis. Markets reacted to the continuing stalemate by exiting dollar markets and seeking safer ports such as gold - a new high of $1624.30 an ounce.
RBA Governor Stevens speaks at 1.05pm AEST
Moody's last night also provided a little more insight into the Basel III requirements for "globally systemically important banks". It listed 28 G-SIBs however did not include the 4 major banks among the list. The imposition of being a G-SIB involves added capital requirements which could lower a banks return on equity however also give them a higher credit outlook. Macquarie Bank is the only Australian bank mentioned within Moody's probable G-SIB list.
In the US overnight the Republicans versus the Democrats battle continues as both parties announced varying options to counter the mounting US Debt Crisis. Markets reacted to the continuing stalemate by exiting dollar markets and seeking safer ports such as gold - a new high of $1624.30 an ounce.
RBA Governor Stevens speaks at 1.05pm AEST
July 25, 2011
A quiet start to the week but CPI looms large
The planned meeting today with Congressional Party leaders and the uncertainty over President Obama's decision to resolve the US debt crisis has kept markets muted over the weekend. Gold provided a safe haven reaching new US dollar highs and Europe received a welcome reprieve as a new aid package was announced for Greece.
Locally Q2 export prices rose 6.0% as import prices rose 0.8% whilst consumer import prices fell. Producer prices are expected today but all focus willbe on Wednesdays CPI release. Headline CPI is expected to rise as a result of fruit and vegetable prices and increased petrol costs however the underlying CPI rate is tipped to be in line with the RBA's expectation. The data provides a signficant signal for the RBA's course of action for the remainder of the year.
Locally Q2 export prices rose 6.0% as import prices rose 0.8% whilst consumer import prices fell. Producer prices are expected today but all focus willbe on Wednesdays CPI release. Headline CPI is expected to rise as a result of fruit and vegetable prices and increased petrol costs however the underlying CPI rate is tipped to be in line with the RBA's expectation. The data provides a signficant signal for the RBA's course of action for the remainder of the year.
July 22, 2011
NAB Qtly Business Survey
Business conditions improved a little in the June Qtr but they are still soft and confidence is mirroring the consumer with further weakness in confidence expected.
Europe
In Europe, EU leaders agreed a further bail-out for Greece worth €109bn, with around €37bn to be contributed by private sector bondholders in the form of debt swaps or rollovers. Leaders also agreed to a smaller scale bond buyback programme worth €12.6bn
Greek 2 year bonds have fallen but are still at a staggering 33.81% (down from 40.1%) Markets around the globe staged a relief rally overnight.
Europe
In Europe, EU leaders agreed a further bail-out for Greece worth €109bn, with around €37bn to be contributed by private sector bondholders in the form of debt swaps or rollovers. Leaders also agreed to a smaller scale bond buyback programme worth €12.6bn
Greek 2 year bonds have fallen but are still at a staggering 33.81% (down from 40.1%) Markets around the globe staged a relief rally overnight.
July 20, 2011
RBA Minutes
The minutes from the most recent board meeting were released yesterday and the overall conclusion is that they have accepted there are difficulties globally and domestically and that it was prudent to wait until further evidence (the July 27 release of the CPI) was forthcoming.
Members noted, however, that the flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time. Members noted that the CPI outcome for the June quarter, to be published later in the month, would be important in helping to shape views about inflation, and therefore the future path of interest rates. Accordingly, members considered that the current mildly restrictive setting of monetary policy remained appropriate.
They key obviously is the CPI. If this comes well below expectations though will it push them from their current tightening bias to an easing bias - in line with Westpac's thinking? My opinion is that with post flood growth likely to return and the mining sector still preforming strongly this is unlikley. I do however subscribe to the idea that a 'wait and see' approach may be with us for some time.
BBSW has moved up a little accordingly after the sharp rally on Monday
Europe
Some ease flowed back into global markets overnight with the expectation that European leaders will settle on a plan to resolve (postpone) the Greek debt crisis tonight.
Members noted, however, that the flow of recent information suggested both that there was more time to assess the likely strength of inflationary pressures in Australia and that it would be prudent to use that time. Members noted that the CPI outcome for the June quarter, to be published later in the month, would be important in helping to shape views about inflation, and therefore the future path of interest rates. Accordingly, members considered that the current mildly restrictive setting of monetary policy remained appropriate.
They key obviously is the CPI. If this comes well below expectations though will it push them from their current tightening bias to an easing bias - in line with Westpac's thinking? My opinion is that with post flood growth likely to return and the mining sector still preforming strongly this is unlikley. I do however subscribe to the idea that a 'wait and see' approach may be with us for some time.
BBSW has moved up a little accordingly after the sharp rally on Monday
Europe
Some ease flowed back into global markets overnight with the expectation that European leaders will settle on a plan to resolve (postpone) the Greek debt crisis tonight.
July 19, 2011
Modest bounce in June with an increase of 1.3%. This reverses a two month slide but leaves the annual decline at 11.5%. The worry though is that SUV and passenger cars rose 3.2% but "other" (work vehicles like utes, vans etc) dropped 3.1%
Europe
Worries here have continued with bank stocks loosing ground and a shift into the safety of gold continuing. Spot gold hit an all time high of $1607.90 an ounce.
RBA Minutes
The minutes from the most recent board meeting will be released at 11.30 today. The market will be pouring over it closely for clues as to the RBA's thinking.
Europe
Worries here have continued with bank stocks loosing ground and a shift into the safety of gold continuing. Spot gold hit an all time high of $1607.90 an ounce.
RBA Minutes
The minutes from the most recent board meeting will be released at 11.30 today. The market will be pouring over it closely for clues as to the RBA's thinking.
July 18, 2011
Rates
There is much discussion revolving around whether the next move in rates will be up or down. Westpac has made a bold step predicting officially that the next move will be down. Consumers are holding onto their money very tightly at the moment and confidence is way down. The Westpac headlines, and further talk of rate cuts, may however have the effect of loosening consumers grip on their cash and negate the need for a cut.
Rates across the curve have moved lower today with some parts of the curve inverting.
Much of the concern and justification for the rate cut talk is coming from overseas however and it looks like this still has some way to go. It's looking like Italy is pulling back from the brink but the same can't be said for Greece. A number of European banks failed stress tests as well and they will have to raise collectively 2.6bln Euro
In teh USA we think it's unlikely that congress won't work through the debt ceiling issues but it is nevertheless causing some nervousness. S&P has added to this by joining Moody's in casting a negative light on the US credit rating if they don't raise the debt ceiling.
In Australia the RBA Minutes will be released on Tuesday shedding further light on their thinking.
Rates across the curve have moved lower today with some parts of the curve inverting.
Much of the concern and justification for the rate cut talk is coming from overseas however and it looks like this still has some way to go. It's looking like Italy is pulling back from the brink but the same can't be said for Greece. A number of European banks failed stress tests as well and they will have to raise collectively 2.6bln Euro
In teh USA we think it's unlikely that congress won't work through the debt ceiling issues but it is nevertheless causing some nervousness. S&P has added to this by joining Moody's in casting a negative light on the US credit rating if they don't raise the debt ceiling.
In Australia the RBA Minutes will be released on Tuesday shedding further light on their thinking.
July 15, 2011
The US Stalemate
Despite some positive earnings news and economic data released last night markets globally reacted negatively to Federal Reserve Chairman Ben Bernanke's comments whilst adressing Congress. The Fed is reluctant to commit to any immediate plans to further stimulate the US Economy in the short term but also warned Congress that inaction on their part not to reach a resolution quickly on the debt ceiling and broader fiscal policy coud lead to incresed borrowing costs and a further widening of the deficit. Moody's placed the US credit rating on review for possible downgrade on the basis that a missed interest payment or principal repayment was plausible given the current delays on reachinging an agreement.
In Europe, Italy's Senate agreed to pass budget cuts but the news did nothing to boost markets.
No data released in Australia today.
In Europe, Italy's Senate agreed to pass budget cuts but the news did nothing to boost markets.
No data released in Australia today.
Consumer Confidence Falls
The Westpac Melbourne Institute consumer sentiment index fell by 8.3% in July, down to an index of 92.8. It is apparent that households are worried about Australia’s economic outlook, as the saving rate is at a 25 year high. The concerns are revolving around the recent declines in the equity market, along with widespread reports that the housing market remains weak. This, combined with the fall in business confidence we saw yesterday is further reason for the RBA to remain on hold.
Italy’s Senate is due to pass the $EU40bn austerity package tonight, as the opposition parties have vowed not to obstruct the legislation.
Today in Australia will see the release of the NAB Quarterly Residential Property Survey.
Italy’s Senate is due to pass the $EU40bn austerity package tonight, as the opposition parties have vowed not to obstruct the legislation.
Today in Australia will see the release of the NAB Quarterly Residential Property Survey.
July 14, 2011
NAB Business Survey
The NAB Business Survey, released yesterday, showed that Australian business confidence deteriorated sharply in June. The index dropped from +6 to 0, as it appears that the slow start to the first half of 2011 is weighing on business. Business conditions were slightly higher, moving from 0 to +2, however the retail sector fell to worrying levels, to around that of November 2008 (just before the governments handout).
Equity markets were hammered overnight, as debt concerns in Europe continue to grow. Moody's cut Irelands bond rating to junk status and warned of further downgrades.
Consumer confidence for July will be released today.
Equity markets were hammered overnight, as debt concerns in Europe continue to grow. Moody's cut Irelands bond rating to junk status and warned of further downgrades.
Consumer confidence for July will be released today.
July 12, 2011
Carbon Tax Details
Julia Gillard announced that Australia’s carbon tax would be priced at $23/tonne from July 1 2012, and would increase 2.5%pa in real terms until 2015. The Government estimates that the tax will increase CPI by 0.7% in 2012-13, with the scheme due to increase the budget deficit by $2.57bn this financial year. There are no immediate implications for interest rates as the tax was priced in but if growth is adversely impacted down the track this could limit the upward trajectory of rates.
US non-farm payrolls disappointed on Friday night, rising a paltry 18k for June. Unemployment rose to 9.2%, from 9.1% as employment growth as slowed to a crawl.
Housing Finance approvals (May) will be released today. The NAB Business Survey will be released tomorrow, while Consumer Sentiment will be released on Wednesday.
US non-farm payrolls disappointed on Friday night, rising a paltry 18k for June. Unemployment rose to 9.2%, from 9.1% as employment growth as slowed to a crawl.
Housing Finance approvals (May) will be released today. The NAB Business Survey will be released tomorrow, while Consumer Sentiment will be released on Wednesday.
Finance Approvals
Housing finance approvals for May came in as expected, rising 4.4%. It was also encouraging to see that there was a pronounced jump in new housing approvals, which is a positive for construction activity. Despite this, the underlying trend still remains soft, as the four months previous had all seen declines in approvals.
The spread of Spanish and Italian bonds over German bonds rose by 33 and 42 bps respectively overnight. It is clear that sovereign debt concerns in the European region remain strong.
The NAB Business survey will be released today.
The spread of Spanish and Italian bonds over German bonds rose by 33 and 42 bps respectively overnight. It is clear that sovereign debt concerns in the European region remain strong.
The NAB Business survey will be released today.
July 08, 2011
Further European Woes
Moodys Investors Services downgraded Portugual’s sovereign debt to junk status on July 5 as European nations continue to feel the effects of poor investor confidence and poor budget management by certain nations. Moodys cited Portugual may need to seek more aid provisioned by the European Central Bank just as Greece had done a few weeks earlier.
ECB president Jean-Claude Trichet is expected to increase interest rates later this evening by 25 basis points to 1.5% as he battles to control the fall out from Greece and continued price pressures from surging fuel and commodity costs. Although this would only be the second rate rise in 2011 it is widely expected not to be the
last.
Local data today focuses on the Australian labour market with employment figures for June due for release. The median forecast is for jobs to rise by 15k leaving unemployment unchanged at 4.9%.
In the US tonight ADP Employment report will be a strong indicator toward Friday’s Non-Farm Payroll data. In Europe ECB is widely tipped to increase rates by 0.25 basis points to 1.5% and the BOE is expected to leave rates unchanged at 0.5%.
ECB president Jean-Claude Trichet is expected to increase interest rates later this evening by 25 basis points to 1.5% as he battles to control the fall out from Greece and continued price pressures from surging fuel and commodity costs. Although this would only be the second rate rise in 2011 it is widely expected not to be the
last.
Local data today focuses on the Australian labour market with employment figures for June due for release. The median forecast is for jobs to rise by 15k leaving unemployment unchanged at 4.9%.
In the US tonight ADP Employment report will be a strong indicator toward Friday’s Non-Farm Payroll data. In Europe ECB is widely tipped to increase rates by 0.25 basis points to 1.5% and the BOE is expected to leave rates unchanged at 0.5%.
Employment Report
Employment numbers surprised the market yesterday, as 23,000 new jobs were created, above the median forecast of 15,000. 59,000 new full time positions were filled, which was offset by a 35,600 decline in part time employment. The unemployment rate has remained steady at 4.9% while the participation rate rose from 65.5% to 65.6%. Despite the result, the developing trend of slower employment growth still remains. The positive outcome is not likely to push the RBA into a move any time soon.
The ECB raised interest rates by 25bp, to 1.5% as expected. Trichet did not suggest that rates are now ‘appropriate’, so we can assume that there will be further hikes in the not to distant future.
The Bank of England left rates unchanged at 0.5%.
Today in Australia, RBA Assistant Governor, Guy Debelle is speaking in Adelaide on the topic ‘In Defence of Current Account Deficits’.
The ECB raised interest rates by 25bp, to 1.5% as expected. Trichet did not suggest that rates are now ‘appropriate’, so we can assume that there will be further hikes in the not to distant future.
The Bank of England left rates unchanged at 0.5%.
Today in Australia, RBA Assistant Governor, Guy Debelle is speaking in Adelaide on the topic ‘In Defence of Current Account Deficits’.
July 07, 2011
From Hawk to Dove – where to next?
The sentiment expressed by the RBA Governor in yesterday’s Monetary Policy announcement expressed a more obvious softer and cautious tone to the continued optimistic views highlighted by the Committee. “…Over the medium term, overall growth is likely to be at trend or higher…” prefaced by “…if the world economy grows as expected…” and we know that is a very big “if”.
Citing “…the banking and sovereign debt problems in Europe…” dampening the prospects for growth and increasing the likelihood of further global volatility the RBA has also acknowledged that domestic households are displaying continued “…cautious behaviour…” negatively impacting last months growth forecasts for the remainder of 2011 and signaling interest rates are on hold for the foreseeable future.
The Australian Trade Surplus (May) announced yesterday, rose strongly to $2.333bn, boosted by the continued recovery in exports post the spate of natural disasters earlier this year. Rural exports rose 6% in May and Gold exports rose by $536m, a staggering 49% rise from the previous month.
No data of note released today in Australia.
In the US tonight ISM Non-Manufacturing, Mortgage Applications and ADP Employment report are due.
Citing “…the banking and sovereign debt problems in Europe…” dampening the prospects for growth and increasing the likelihood of further global volatility the RBA has also acknowledged that domestic households are displaying continued “…cautious behaviour…” negatively impacting last months growth forecasts for the remainder of 2011 and signaling interest rates are on hold for the foreseeable future.
The Australian Trade Surplus (May) announced yesterday, rose strongly to $2.333bn, boosted by the continued recovery in exports post the spate of natural disasters earlier this year. Rural exports rose 6% in May and Gold exports rose by $536m, a staggering 49% rise from the previous month.
No data of note released today in Australia.
In the US tonight ISM Non-Manufacturing, Mortgage Applications and ADP Employment report are due.
July 05, 2011
Retail Sales
Retail Sales fell 0.6% in May, considerably below the market forecast of +0.3%. As such, the trend in retail growth is running at a meager 0.3% per month, which outlines the caution seen from households.
In another disappointing result, total building approvals fell by 7.9% in May, below the market median of -0.5%. Approvals are down 14% over the last year, which outlines how higher interest rates and falling house prices continue to slow activity.
The TD-MI CPI gauge, released yesterday, recorded a flat result in June. The gauge’s measure of underlying inflation rose just 0.1% in June, after being flat in May. This therefore could be interpreted that the shortterm inflation pressure we saw with Q1 CPI may be slowing.
ANZ Job ads rose 3.7% in June, due to a 4.2% rise in Internet ads.
The RBA will meet today, and the market is strongly indicating that the cash rate will remain at 4.75%. The recent flow of data has been soft, and the RBA is not under any pressure to lift rates in the short term. It is our view that the next CPI release, due out towards the end of this month, will strongly dictate when the RBA will next make their move. Expect the rhetoric from today’s accompanying statement to be similar to last month’s minutes, stating that they will ‘continue to assess carefully the evolving outlook for growth and inflation’.
The ABS will release the Trade Balance for May today.
In another disappointing result, total building approvals fell by 7.9% in May, below the market median of -0.5%. Approvals are down 14% over the last year, which outlines how higher interest rates and falling house prices continue to slow activity.
The TD-MI CPI gauge, released yesterday, recorded a flat result in June. The gauge’s measure of underlying inflation rose just 0.1% in June, after being flat in May. This therefore could be interpreted that the shortterm inflation pressure we saw with Q1 CPI may be slowing.
ANZ Job ads rose 3.7% in June, due to a 4.2% rise in Internet ads.
The RBA will meet today, and the market is strongly indicating that the cash rate will remain at 4.75%. The recent flow of data has been soft, and the RBA is not under any pressure to lift rates in the short term. It is our view that the next CPI release, due out towards the end of this month, will strongly dictate when the RBA will next make their move. Expect the rhetoric from today’s accompanying statement to be similar to last month’s minutes, stating that they will ‘continue to assess carefully the evolving outlook for growth and inflation’.
The ABS will release the Trade Balance for May today.
July 04, 2011
RBA Commodity Prices
RBA Commodity Prices for June rose 1.3%/24.9%yoy. Coal and iron ore prices were the biggest movers contributing to the rise, and are expected to move even higher in the coming months. These figures once again confirm how the Australian economy is moving at two speeds, as the majority of sectors (outside of mining) continue to struggle.
With the Greek Austerity package passed by its Parliament, Euro Finance ministers have approved the 5th installment of the EU$110b bailout package.
It will be a big week on the data front, beginning with Retail Sales (May), Building Approvals and the monthly TD-MI CPI Gauge all to be released today. Tomorrow will see the release of the trade surplus numbers, while the Labour Force report will be released on Thursday.
With the Greek Austerity package passed by its Parliament, Euro Finance ministers have approved the 5th installment of the EU$110b bailout package.
It will be a big week on the data front, beginning with Retail Sales (May), Building Approvals and the monthly TD-MI CPI Gauge all to be released today. Tomorrow will see the release of the trade surplus numbers, while the Labour Force report will be released on Thursday.
July 01, 2011
Soft Housing Data
Soft housing data in Australia yesterday, as the RP Data-Rismark data showed that capital city house prices fell by 0.3% in May. Australian private sector credit growth was also weak, rising just 0.3% in May after a flat outcome in April.
The Greek parliament passed the implementation bill, legislating the detail of their of their Austerity package. The EU and IMF praised the result, saying that it will lead to the next tranche payment.
An August rate hike now appears unlikely, unless we see an unusually high CPI report. The recent bout of negative data, along with European troubles has dampened the RBA’s urgency to lift the cash rate. We still expect the next move to be up, however it may be several months away.
The Greek parliament passed the implementation bill, legislating the detail of their of their Austerity package. The EU and IMF praised the result, saying that it will lead to the next tranche payment.
An August rate hike now appears unlikely, unless we see an unusually high CPI report. The recent bout of negative data, along with European troubles has dampened the RBA’s urgency to lift the cash rate. We still expect the next move to be up, however it may be several months away.
DEWR Skilled Survey
Australia’s DEWR Skilled Vacancies report for June showed that the index had fallen 0.4% for the headline trend series. This continues the momentum of last months drop (1.9%), and it may be another indicator that employment growth may be slowing. The weak trend was also confirmed with May’s Internet Vacancy Index which rose by just 0.3%mom after a fall of 8.6% in April.
Global markets took a sigh of relief last night, as the Greek Parliament passed the Austerity measures. The parliament still has to implement the measures, and this vote will happen today.
Japan appears to be slowly recovering from the natural disasters they encountered earlier this year. Motor vehicle production for May rose by 36% as supply chain issues begin to be resolved.
The May RP Data-Rismark House price series will be released today.
Global markets took a sigh of relief last night, as the Greek Parliament passed the Austerity measures. The parliament still has to implement the measures, and this vote will happen today.
Japan appears to be slowly recovering from the natural disasters they encountered earlier this year. Motor vehicle production for May rose by 36% as supply chain issues begin to be resolved.
The May RP Data-Rismark House price series will be released today.
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