From Deutsche:
In our view the economy is in the process of stabilizing, reflected in recent trends in the labour market and measures of business conditions. Namely jobs growth has largely been sufficient over the course of the past year to keep the unemployment rate little changed. Concomitantly, measures of business conditions in the NAB survey have lifted to be a touch above their 15 year average. Supporting both developments has been the dramatic easing in monetary conditions over the past year (reflecting both the RBA rate cuts but also the ~12% decline in the AUD TWI).
Also acting to support the economy as it transitions to a ‘post mining world’ has been a change in the nature of Australian fiscal policy. At the Federal level the May 2015 budget allowed revenue write-downs to flow through to the bottom line, as opposed to trying to offset their impact on the budget deficit with spending cuts or tax increases elsewhere.
And Bloxo:
The RBA provided its views on the economy to a House of Representatives committee today and, across a range of issues, they seemed more comfortable than they were at the last testimony, in February.
As they noted, the rebalancing of growth is happening, non-mining business conditions have been rising and it is creating jobs. They pointed out that low interest rates are supporting this transition and that the AUD is now ‘doing what it normally should do’ in protecting the local economy from international shocks. The Q&A session the Governor noted that the AUD would be expected to support the Australian economy by falling substantially if China were to slow more than expected.
Little time was spent discussing the slower growth in Q2 GDP, partly because it was anticipated in the RBA’s own forecasts. The RBA noted that ‘the effect of unusual weather conditions on exports meant that GDP as measured exaggerates both the strength in the March quarter and the weakness in the June quarter’.
Things are as good they’ll get right now with the residential construction boomlet and tail end of mining construction combining with rampant house prices and fiscal stimulus. But as iron ore resumes its decline and the capex cliff intensifies again over the next 3-6 months, house prices slow sharply and sink out West then the residential boomlet peaks mid next year and the car industry begins to shutter as well, the blows will continue.
From Capital Economics:
Although in the end the Fed decided not to raise interest rates at the September meeting, it’s clear that the first rate hike isn’t far away. What’s more, despite the latest delay, we still believe that US rates will rise at a much faster pace than widely expected next year. (See our US service for more.)
So how would a marked tightening in monetary policy in the US affect Australia and New Zealand?
Contrary to the downbeat tone adopted in most reports, we think that higher rates in the US would prove to be a good thing for both economies.
To start with, interest rates in the US would rise rapidly only if its economy continued to perform well. While Australia and New Zealand are both much more exposed to China than the US, a strong US economy would clearly be good for the world.
On top of that, we don’t think that rapid US rate hikes would push up bond yields significantly in Australia and New Zealand. Admittedly, 10-year government bond yields in Australia and New Zealand tend to follow in the footsteps of 10-year yields in the US. This was particularly clear during the so-called taper tantrum in May 2013. As Chart 1 shows, the leap in US bond yields triggered by the mere suggestion that the Fed was thinking about tapering its asset purchasing programme was followed by similar rises in bond yields in Australia and New Zealand.
That’s partial analysis. Fed hikes are going to continue to pose enormous problems for China and commodity prices, ipso facto Australia.
And from RBC via Forexlive:
- Pushes out forecast to Q1 2016
- Expects further RBA cut in Q2 of 2016
Previously RBC had forecast a cut both later this year and in Q1 of 2016
They cite RBA governor Glenn Stevens testimony this morning, saying he sounded, while not upbeat, not as downbeat as expected.
RBC say the hurdle to further rate cuts is high and may have risen further.
Much more sober. It beats me how such known knowns as those listed above somehow elude bank economists.
