Thanks mate, there was a bit to cover in the macro space.
History suggests they will. Still, the RBA's own AUD trade-weighted index fell only 3% in 2014 - it's not all about the USD, particularly when the vast majority of our international trade is centred in Asia. As for lower fuel costs remember that in December US retail volumes fell 0.9% despite consumer confidence soaring. Hardly a reliable correlation, at least in the short-term.
Euro QE will not bring the US tightening forward, if anything it'll delay it even further. They're already experiencing disinflation and there's signs in corporate earnings/data that the higher USD is already creating negative economic headwinds. Hiking rates will only enhance the USD bid, create greater disinflationary pressures and make the US corporate sector even less competitive. Needless to say I disagree with the call.
The key thing with the trade data is that the FOB values are estimates only, not actual. Given the movements in spot prices I suspect we'll eventually get significant downward revisions.
Here is a link to the site if you're having problems viewing the charts http://www.scuttpartners.com.au/news/chart-deluge-asset-price-australian-dollar-asx-200-performance-2014/
Here's a link to a story the Economist ran in 2011 looking at FOMC GDP forecasts out to 2013. Obviously the reality was far lower than expectations http://www.economist.com/blogs/freeexchange/2011/06/feds-forecasts
Here is the FOMC's 'dot chart' for fed funds rate projections at the beginning of 2012. Obviously it's likely to be 0-0.25% at the conclusion of 2014 http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120125.pdf
Along with the persistent notion that the Fed will hold off tightening should markets begin to wobble, if you look at the FOMC forecasts over the past few years there is a clear pattern of members grossly overestimating the path for the Fed funds rate.
The best form of AUD jawboning Stevens could have done overnight was not do the interview. The reality is that unemployment is at a 12-year high and people are concerned about job security given the deterioration in the economy. In my view RBA are making the same mistake as they did in 2011, keeping policy too tight for too long. Stability in interest rates is nothing compared to knowing you're getting a reliable pay check when it comes to building confidence.
Stevens has a dig a politicians, and rightly so in my opinion. However, despite warning them of the need for an adult discussion on the economy, the RBA should be more concerned on the odds of that actually occurring. Unfortunately they're not high, and in my book that means that they will have to do more of the heavy lifting. With consumption a large component of GDP, unemployment growing and consumer sentiment so low, something will have to give.
No, pretty much weak across the board. While headlines about an income recession may have amplified the result it's still something that impacts every Australian. Will be interesting to see if sentiment recovers in January.
Looking forward to seeing the asset allocation results in the days ahead given sentiment is skewed towards lower rates domestically.
Like your take, Stephen. Very similar to mine. The statement basically lists a whole list of reasons why they should be easing, and even how they could lower the AUD given divergent monetary policy settings, yet in the end they keep rates at levels that fostering spluttering economic performance.
Like your take, Stephen. Very similar to mine. The statement basically lists a whole array of reasons why they should be easing, and even how they could lower the AUD given divergent monetary policy settings, yet in the end they keep rates at levels that fostering spluttering economic performance.
Nothing like talking your own book, right?
Key question remains will APRA introduce targeted macroprudential measures? There's some signs that investor activity is starting to slow, albeit following a very large upswing. Would be helpful to put them in place even it's for future cycles, not the current one. Would allow for far greater flexibility for the RBA should they be put in place.
If interest-only investor lending is deemed riskier than others then capital weightings should be increased to reflect this, in my opinion at least. One problem that continues to persist is the risk-weightings on business lending. They're higher for a reason but also act as a deterrent to SME's looking to invest in a highish-rate, low-growth environment. Hard to get the animal spirits to awaken given the circumstances.
Great read for anyone looking for the key global macro drivers as we head towards year-end. Throw in the December FOMC policy decision, including updated economic forecasts and 'dots' chart, along with a raft of important domestic data including Q3 GDP, and we're assured of market volatility as liquidity begins to dry up.
If you compare it to the same metric, yes.
If priced in US Dollars, the ASX 200 peaked at 7073 points back in mid-March 2013.
The one glaring omission from this report is the currency movement. It is comparing nominal performance when the two indices are priced in different currencies - the S&P 500 in USD, the ASX 200 in AUD. When comparing the performance of any two asset classes it must be done using the same metric to gauge the 'real' return.
Some quiet significant falls. While one week does not make a trend it's certainly interesting that Sydney and Melbourne, the two cities that have featured heavily in RBA rhetoric of late, saw rates drop sharply. Do you think it's increased chatter about macroprudential tools being implemented or something else, for instance, increased vendor expectations?
Cheers, great update. Will be interesting to see what happens in the weeks ahead, particularly given monetary and regulatory policy implications.
Like the format, Westy. Is this going to be a regular morning piece from now on?
Yes. It's largely central bank policy, while attempting to spur new business investment, that has helped feed short-term thinking amongst corporates. This has seen a massive misallocation of capital to liquid paper markets that offer short-term returns instead of investment in the real economy. Hard to get animal spirits to awaken when all your focus is on beating next quarters forecasts.
Good wrap, Westy. What would you deem to be the greatest moral hazard for the ECB? Purchasing sovereign or commercial debt? Either way it looks like they'll end up being a 'bad bank', either for the public or private sector. Still, given the BoJ are basically the market for longer-dated JGB debt, I can't see the market getting upset whichever way ECB step.
I dare say QE, something that was designed to drive down borrowing costs to spur the private-sector, is the chief catalyst behind record profit levels in the States. Commodity price deflation, growing population levels along with a reluctance to reinvest are also factors.
Yes, slightly expensive from a historic perspective but, of course, these are anything but ordinary times. Good point re energy and financing costs.
Great read, Westy. While many attributed the recent falls to other factors - Ebola, Europe and Fed fund rate expectations just to name a few, many seasoned professionals put the sell off down to stretched valuations in US equities. Has the current earnings season put pay to that notion, setting the scene for fresh highs into year-end, or do you see other risk factors that could potentially derail the rebound that markets are currently discounting? Certainly, unless the FOMC says otherwise, central bank policy looks even more supportive compared to when markets were at their previous peaks.
Here is a follow up article from the Economist that contains an info-graphic on the predicted Senate outcome. With the Republicans almost certain to hold the House all focus will be on the Senate, and the prospect of the Democrats losing their 5 seat majority. It's likely that Obama will now face a hostile congress for the remainder of his Presidential term. Something to consider with US debt ceiling negotiations arriving at the end of Q1 next year. http://www.economist.com/blogs/graphicdetail/2014/10/us-mid-terms-interactive
Yes, will be interesting to see whether the aggressive lift off signalled by FOMC participants in September will be mirrored in the poll result. Early days but most are already indicating a Q4 2015 start date, or later.
Great to see you posting, Pete. High quality analysis as always.
The result look good because the ECB's 'adverse' scenario doesn't factor in any likelihood of deflation. They'd look significantly worse if that criteria had been tweaked. Has already raised plenty of scepticism about robustness of the testing, particularly as many member states are already experiencing deflation. My biggest gripe is that just because the ECB don't forecast it why it is not deemed a risk? As we've seen from them on numerous occasions their forecasts, and then reality, often don't come close.
Although we haven't received the Q3 WPI as yet. We will 'probably' have real wages growth once it's released next month.
A consequence of the ongoing push to automate markets rather than a capitulation in my opinion. Given that 85%+ of volumes on any given day is pumped through via HFT, it looks exactly like a momentum play, initially to downside and then to the upside. To me that explains the intraday performance of the less-liquid Russell 2000.
When you have many pinning their hopes purely on 'Santa Claus' you have to be somewhat cautious after the run we've had.