ASX at the close

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

Rate cut calls as Australia capex data disappoints

Consolidation remains the key theme in global markets with investors just struggling to find any fresh catalysts to drive equities higher. Locally, the focus has been in the latest capital expenditure numbers, which have seen the swaps market flare up a bit. Earlier this month, the swaps market was pointing to a 70% chance of a March rate cut but this had since dropped to around 30%.

Following today’s data, this number has since popped back up to around 53%. At the same time, the majority of economists expect the RBA to back up the February rate cut with another one in March, taking the official rate down to 2%.

The headline print showed a 2.2% decline in private capital expenditure quarter-on-quarter when the market was expecting it down 1.7%. Perhaps the most significant thing from the reading was the first estimate for intended 2015/2016 capital expenditure. This reading came in at $109.8 billion which was below expectations of around $119 billion.

Declines for both mining and non-mining investment means the economy is not quite responding to the last rate cut cycle in the way they would have wanted it to. The RBA would have wanted non-mining investment to respond to rate cuts but the fact it has not and, given that’s the direction the central bank has been wanting to head, then more is likely to be needed to support the economy.

Whether this rate cut will come to fruition next week though remains to be seen. After having squeezed higher in the past couple of sessions, AUD/USD retreated on the back of the release.

(AUD downtrend remains intact)

ScreenHunter_6249 Feb. 26 15.55

China and Japan rally

The ASX 200 has been sluggish today and retested 5900 after stuttering near 6000. Earnings have played a big role as well today, with some significant moves in the likes of Qantas, Nine Entertainment, Transfield, Acrux and Alumina.

Elsewhere in the region, China seems to have shaken off some of yesterday’s weakness very quickly as some encouraging headlines crossed the tape. There are reports suggesting China is preparing policies to aid property prices if the current weakness persists and that a selected five banks have been allowed to cut reserve required ratios.

The PBoC seems to be looking at various ways to aid the economy and speculation of some sort of action seems to be driving Chinese equities higher today. In the background, Japan has managed to extend its gains and trade at fresh cycle highs with speculation that a number of Japan’s pension funds are looking to reallocate more funds to Japanese equities.

Mixed open for Europe

Ahead of the European open, we are calling the major bourses relatively flat as there is limited data on the calendar. While Greece headlines have quietened down a bit, the situation will remain active in the background. No doubt the fact deeper negotiations are on the way will see Greece being front and centre again in the not-too-distant future. I wouldn’t be surprised to see investors look to buy the dips in European equities given the QE program is likely to keep equities underpinned, particularly the DAX.

On the economic calendar, we have unemployment change and consumer climate data out of Germany while for the region we have money supply and private loans data. In the UK we have GDP and business investment data. Given the recent run in the sterling, UK data is very interesting at the moment.

US trade brings inflation numbers and, given this was a big talking point in Janet Yellen’s testimony, it should be watched closely.

Comments

  1. Well I really think its finally all coming home to roost for Australia, and more importantly its dawning on a lot of people that the proverbial sht is going to hit the fan.

    • I agree. And for the majority, the S wont hit the fan until they see the value of their house falling, consistently, month after month.

      That’s the unthinkable scenario not being canvassed by any of the mainstream commentariat (now getting a whiff of that soiled fan).

      • True – someone posted this thread at a property investment forum recently and it is very, very telling.

        http://somersoft.com/forums/showthread.php?t=105918

        The issue here is the requirement that the investor (with THREE properties) will need to sell their Sydney home.

        I think this will be the issue. Combine this with capital reserve requirements LVR’s and we will see these “values” falling very fast.

        Every avalanche begins with a crack, barely any snow at all, then a trickle, then – well.

      • Waiting to see people sell their IP to buy equities like cba for better yeild -.- . You know they’re like buying bonds….

      • What is this ‘yield’ you speak of?

        Property ‘investors’ would only get less tax deductions – its all about the elevator-to-the–sky capital gains…

        How far to the Minksy Moment?

        Does Sydney property or the NASDAQ crack first?

        Both have been in Ponzi phase for some time…

  2. I am intrigued by what capital investment is currently being held back by interest rates being too high?

    • [email protected]

      jeezstan ..?? jeezstan???

      wear the fox hat?

      somewhere roun bethlehem must be..

      oh hang on..

      thanks Stan

    • That NEC share price isn’t going to get up to the ~$2.40 required for the PE guys to exit by itself is it?

      I haven’t looked at the balance sheet but I dunno, FTA TV not exactly a business with a robust outlook is it?

    • Gyngell Genius… Think the only thing that might save them is if he showed a genuine interested in punching on with Packer again as part of a weekly scheduled program featuring a random public location somewhere in Australia.

  3. Government spending on “engagement strategies” is dubious at best:

    “Joe Hockey under fire for taxpayer-funded PR campaign on tax reform”

    http://www.smh.com.au/federal-politics/political-news/joe-hockey-under-fire-for-taxpayerfunded-pr-campaign-on-tax-reform-20150226-13pwxr.html

    but the receipients of $360 000 of tax payers money are:

    “Public affairs firm GRACosway, co-chaired by former Liberal minister Helen Coonan and Keating-era Labor treasurer John Dawkins, has been paid $360,000 to prepare the communications effort on tax reform.

    The project is being led by GRACosway executives Richard King and Peter Greenwood – both former Coalition ministerial staffers. Mr King was a senior political adviser within Mr Hockey’s Tax Reform Unit.”

    More tax payer dollars to party hacks. Was this work advertised on Austender? Fucking criminal. Hockey should be sacked.

    • [email protected]

      FMD pickin’ winners baby.

      Dawkins record at VET… winnaahh

  4. Nowhere else to put it but;

    #getthef&ckonwithitmalcs seems to be back in play #libspill, #libspill etc …

    As much as I agree with WingNut on the Abbot comedy show …

  5. Its on again…

    Chris Uhlmann @CUhlmann · 1 hour ago
    On 7pm ABC News tonight, pressure is building in the Liberal Party for another tilt at the Prime Minister. Many believe Turnbull should act

    And this:
    http://www.news.com.au/national/seven-news-reports-malcolm-turnbull-has-the-numbers-to-beat-tony-abbott-in-a-leadership-spill/story-fncynjr2-1227240513824

    Could be all over by next week. Lets hope so for the sake of the nation. The only people posting #IStandWithTony hashtags are ALP members.

    • Brandis has now overtaken Abbott as my biggest political bother. I could put up with Tony for a few more months if Brandis disappeared. Preferably to Guantanamo via Manus Island, West Papua and Egypt.

      *waves at asio*

    • Seriously Lorax, is Malcolm is going to change things that much? The banking and finance lobby will be very happy with this outcome.

      • Maybe it is teasing …..

        (from Sky #d will be happy!)

        “However, one government insider and Abbott supporter said Mr Turnbull didn’t have the numbers.

        He said this latest leadership speculation was down to the same few disaffected MPs as last time, who were trying to beat up support for Mr Turnbull.

        ‘The vast majority of people know we can’t win the election with Malcolm as leader, because with Malcolm as leader we would lose a chunk of our base and no party has ever won an election without its base,’ he told AAP”

        But surely – this position is just plain silly. So, the 18% of Abbot voters are going to vote Labor are they? Or that “Crook” Palmer?

        Recall the last 2 popularity polls prior to the election: Turnbull was more popular among Liberal voters than Abbot. I’m sure with the benfit of incumbency he’s recover that position. Surely, incumbency is the only reason Abbot become more popular among lib voters, following the election…

  6. The ONLY REASON countries around the world have ZIRP is to make it possible for governments around the world to take on more debt and to be able to pay the interest bill on that debt.

    This has led to deflation.

    To say that central banks have ZIRP to help the economy is a cruel joke.

      • Glenn Stevens disagrees with you.
        Address to Anika Foundation 22 July 2014:
        “Long term rates fall below where they would otherwise be as the central bank bids for securities in the market”

        Government holds long-term debt for the longest duration during a balance sheet depression.

      • The main purpose was to prop up the extremely sick (ie in substance insolvent) balance sheets of the global banks and prevent all out asset deflation and an ensuing depression.

        Off course there were prob other ways (ie directly bailing out the debt serfs), but propping up the bonus machines was heavily lobbied and had a very favourable outcome for retiring pollies.

      • Yes the same Glen that raised official interest rate rise by 50 basis points, early in 2008, and add on neoclassical economics aka Milton Friedman. And as Neo-classical economists only focus on two factors of production – capital and labour. – equilibrium models ubiquitous in mainstream policy and research did not see the crisis. Additionally the rational actor model acerbated the problem.

        To highlight this lets go back to 2009 where “Glenn Stevens, governor of the Reserve Bank of Australia, said: “I do not know anyone who predicted this course of events. But it has occurred, it has implications, and so we must reflect on it.” We must indeed. –

        Where as sort like Fred Harrison wrote in his 1997 analysis – The Chaos Makers

        By 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market equal to what happened in 1988/9. Land prices will be near their 18-year peak, driven by an exponential growth rate, on the verge of collapse that will presage the global depression of 2010. The two events will not be coincidental: the peak in land prices not merely signalling the looming recession but being the primary cause of it.

        Along with Prof Michael Hudson, Steve Keen and Bryan Kavanagh.

        This might help a bit – http://mpra.ub.uni-muenchen.de/15892/

        Additional right here at MB – http://www.macrobusiness.com.au/2014/03/glenn-stevens-legacy-is-in-jeopardy/

        Skippy… so you have a inflationista working with ideological view points inputting them in crappy methodology modeling – rubbish in rubbish out.

    • Actually I like – HOPE – better, the narcissistic NPD quality lends it a certain Je ne sais quoi about it, reflects the more accurate reality.

  7. NEW ZEALAND DEPUTY PRIME MINISTER BILL ENGLISH ON HOUSING … DENSIFICATION … EBOLA …

    “(Urban) densification is about as popular as Ebola … “ says New Zealand Deputy Prime Minister Bill English …

    Finance Minister says calls for densification as popular in Auckland as Ebola – Yahoo Finance New Zealand

    https://nz.finance.yahoo.com/news/finance-minister-says-calls-densification-020800747.html

    Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be.

    Graeme Wheeler told Parliament’s finance and expenditure select committee this week that building height restrictions and NIMBY attitudes in inner Auckland were standing in the way of an adequate supply-side response to the region’s housing shortage. He estimated the backlog of unsatisfied demand at between 15,000 and 20,000 houses.

    • beehive.govt.nz – Dep PM Bill English – Speech to the Auckland Chamber of Commerce and Massey University

      https://www.beehive.govt.nz/speech/speech-auckland-chamber-commerce-and-massey-university-4

      … extract …

      Rising rents push up our $2 billion annual cost of subsidising around half of all housing rentals in New Zealand, and high house prices maintain pressure for income transfers to households.

      Our third concern is that rising house prices contribute to unfairness and inequality.

      Poor planning and rising input and construction costs have increased housing costs as a proportion of low and middle income household budgets… read more via hyperlink above …

  8. The Traveling Wilbur

    Wow! What a ride. [Dow Futures]. It’s not too late. It’s just starting if anyone else wants on too.

    EDIT: And, ladies and germs, this is the kind of economic data that if you’re American, you’re last name is Rader and you’re first name starts with a ‘T’ that you really, really, really, did not want to see while Yellen’s looking for excuses not to have to raise rates. This is end of days stuff.

    • The Traveling Wilbur

      Oh Mig, I hope you’re seeing this. (Assuming this ball keeps rolling the way it is this is going to be some night). Reminds me how happy I am not to be American.

      [also waves at ASIO. and the NSA.]

      [Yep, thanks for reciprocating.] [meaning, responding in kind or approrpriately/as expected]

    • The Traveling Wilbur

      Well, I’ll have to – despite it being on the brink and tettering – leave it their folks. Good night one and all and always remember to buckle up before you strap on your trader hat. Looks like tonight is going to be an interesting one for sure.

  9. The Traveling Wilbur

    Real earnings? 1.2%! In a month?! Disgusting. Next they’ll be wanting health insurance benefits. And God forbid, a dental plan.