Regulator panic crashes Aussie yield curve towards recession signal

Via Bloomie:

Sydney’s plunging house prices are usurping a prolonged wage slump as the key worry for the central bank, with markets now showing more chance of an interest-rate cut than a hike in 2019.

Prices in Australia’s biggest city have tumbled 10 percent and some economists are tipping a similar fall next year. While the central bank isn’t panicking just yet, a 15 percent nationwide drop in prices would cut about A$1 trillion ($718 billion) from the housing stock value. That could deal a major blow to consumption, which props up about 60 percent of the economy.

…Money markets were pricing in about a 12 percent chance of a rate cut in the next six months and a 20 percent chance through to the end of 2019, in Sydney at 8 a.m. on Wednesday. There was about a 44 percent chance of a hike by the end of 2020.

Oh, it’s panicking alright. The hilariously corrupt behaviour underway is sending ripples through the Aussie bond market. Yields are breaking out across the curve:

And the curve has crashed again today to just 4bps above inversion:

Don’t look now but we may invert more deeply than the US shortly if the Fed doves up:

Which is exactly as it should be given our growth outlook is much worse than that of the US.

David Llewellyn-Smith
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