Recap 8-06-13

Commentary:

The RBA cut made sense given recent rhetoric, but less so in light of the recent data. Economic data in Australia has broadly surprised to the upside since March, although within a still weak trend. But with US, EU, and Japan data also all surprising to the upside, today’s cut only makes sense if near term data comes in much weaker. (We get the Australia unemployment figures tomorrow, with an uptick to 5.8% expected) The most likely explanation may be that the RBA is trying to get ahead of the weakening employment picture. They seem to be succeeding – model outputs suggest 3yr yields are at the richest levels vs the macro data since last May. This suggests that the RBA is likely to be on hold, despite the weak underlying macro picture, until recent macro trends extend further.

Whether Australia’s macro trends do extend remains to be seen, of course. But most of the data flow suggests the affirmative. The RBA cuts over the past couple years, along with the drop in the currency, does not seem to have been sufficient to reverse the weak trends. Despite high savings rates, real retail sales are barely growing. Manufacturing, as proxied by the PMI, remains stuck in recession territory. Home loan growth hasn’t really changed much in 2 years, despite the lower interest rates, and building approval growth appears to be decelerating.

Separately, the JOLTS data continues to paint a picture of a bifurcated job market. The vacancy rate continues to increase, despite a static rate of hiring. This suggests that there is a shortage of people with highly sought-after skillsets, while people will less sought after skills are in surplus.

Notable:

  • RBA cut 25bps as expected. The statement was a less dovish than expected.
  • Australia Trade Balance declined to 602m vs 804m exp. The 12 month average improved to -805m
  • UK Halifax House Prices rose 0.9% in Jul vs 0.5% exp and 0.6% prev
  • Late yesterday, the results of the Fed’s Senior Loan Officer Survey showed that credit conditions as well as demand continues to improve. Credit conditions eased further, although at a slower pace than in April. Credit standards for residential mortgages were an exception, with little change.

Upcoming Data:

  • Wed: BoE Inflation Report, Carney Speaks, Japan Current Acct, Australia Employment,
  • Thu: BoJ, Japan Eco Watchers Survey, US Jobless Claims, JapanMoney Supply, China CPI
  • Fri: China IP, Retail Sales, Canada Employment
  • Mon: Japan 2Q GDP, US WASDE reports, US RICS House Price Balance, Japan Machine Orders, Australia NAB Business Confidence
  • Tue: UK Inflation, German Zew, US Retail Sales, Australia Consumer Confidence
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