David Scutt

Mid-year rates lift off delayed? That was the question many were left pondering following the release of the January FOMC minutes earlier this morning with the committee, on balance, striking a more dovish tone that what had been envisaged by the markets. The key line from the statement is found... Show More

David Scutt

RBA Day: Decisiveness or simply more dithering? The Reserve Bank of Australia will announce their February monetary policy decision at 2.30pm this afternoon. While I think the RBA should cut rates, in my opinion they should have moved pre-emptively late last year, keeping with tradition for being cautious and slow... Show More

David Scutt

Eurozone inflation, China PMI at multi-year lows in January - Chinese manufacturing activity contracted for the first time since September 2012 in January with the NBS PMI gauge slipping to 49.8. The reading was below the 50.1 level of December and expectations for an acceleration to 50.2 with weaker readings... Show More

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.

On Door slammed shut on further RBA easing -

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.

On Euro QE will bring the US rate-rises closer and send the dollar soaring -

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.

On Stevens slashes rate cut hopes, underpinning Aussie: While the language towards the currency is an escalation of jawboning seen earlier in the year, by... -

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.

On Stevens slashes rate cut hopes, underpinning Aussie: While the language towards the currency is an escalation of jawboning seen earlier in the year, by... -

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.

On Today APRA released data for the September Quarter on the ADIs exposure to residential property -

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.

On There will certainly be a number of money managers outperforming benchmarks wishing that the year would end abruptly so they could lock in performance -

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.

On Australia's longest bear market -

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?

On Earlier today RP Data released its final auction clearance rate result for last week -

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.

On Why capitalism is not doing its job: AFR (@cjoye) The prices we see today for equities, bonds and housing are not remotely near their true market clearing... -

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.

On The fact that the EUR has broken the 3 October low of US$1.2501 is interesting, and stop losses have pushed the pair down to US$1.2437 -

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.

On What does the end of QE mean for shares -

Yes, slightly expensive from a historic perspective but, of course, these are anything but ordinary times. Good point re energy and financing costs.

On US equity markets continue to power ahead -

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.

On US equity markets continue to power ahead -

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

On Here's the view of Sean Callow (@seandcallow), Westpac's Senior Currency Strategist, on the implications for next week's US mid-term elections on FX and rates... -

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.

On Here is the link to the ECB's AQR (stress-testing) results that came out late yesterday evening -

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.

On Did we see a market capitulation -