ANZ’s coverage of China maybe looking up, but that hasn’t stopped them moving their forecasts of the Australian interest rate up to DefCon Magenta.
Due to the further sharp weakening in mining business conditions in recent months, the tepid improvement in the non-mining sector, the deterioration in job advertising trends and the strong AUD, we now expect a further 1 percentage point cut in the cash rate over the course of 2013. This will help limit the prospective rise in the unemployment rate that job advertising is signalling. If realised, such rate moves will provide significant further support to the non-mining sectors, including the housing market.
The key issue for markets and policy makers is whether the weakest sectors of the economy will strengthen sufficiently to offset the anticipated slowing in mining investment. The RBA’s two rate cuts in recent months suggest the central bank wants some further insurance on this front.
Overseas, lead indicators have rebounded modestly as inventories continue to be liquidated. However, we are yet to see a solid pick-up in new orders globally. As a result, we see industrial production momentum picking up only modestly through the first half of 2013, led by the US and China. In Europe, recent PMI and German IFO surveys indicate a stabilisation in growth over coming months. We forecast the central banks of the US, Japan and Europe will maintain extremely accommodative policies which will anchor bond yields. Further asset purchases or non- traditional monetary policy actions are expected to continue through 2013 – this is likely to continue to put upward pressure on the AUD.
So it looks like the ANZ holds some strong doubts about the RBA’s strategic belief that construction can offset the Capex decline. More string pushing to come by the looks of this