From the SMH blog:
…27 economists surveyed by Bloomberg, 26 expect rate hikes next year. But bond markets are pricing in the chance of the opposite.
And in the wake of this week’s turmoil economist, Guy Bruten at Alliance Bernstein lists four circumstances (aside from GFC II) that may prompt the RBA to cut, rather than, hike rates next year:
- Angst around the commodities downturn would have to rise further. Bruten gives this scenario a tick – recent falls in the iron ore price are driving down long-term forecasts “with the obvious consequences for capital spending, government revenue and so forth”.
- There will need to be an awareness that housing construction will soon start to lose momentum, says Bruten, pointing out that leading indicators such as housing finance and building approvals are now levelling out. “Come mid-2015, the lion’s share of the upswing will be done.”
- The “key barometer” to the previous scenario is the labour market. The employment trend is central to gauging the transition from mining-led growth dynamic to a non-mining one. Too early to tell on this one, “but it is difficult to argue that we’re on the cusp of a major improvement,” writes Bruten.
- Finally – is there enough inflation to justify an easing? Third quarter CPI out on Wednesday will likely be “on the low side” – allowing “plenty of headroom for a rate cut”.
“So at this stage, two out of the four factors look like getting a tick,” sums up Bruten. “While an easing is by no means a base-case scenario, its probability is rising. And given the surprise that this would represent to consensus expectations, developments in those other two factors are worth watching closely.”
The odd man out is The Kouk, who sees to two cuts next year after his rabid bullish episode passed earlier this year. MB doesn’t bother submitting forecasts to Bloomie but perhaps we should given we’ll be the only ones that got it right when the cuts come!
