Morgan Stanley: RBA lost, rates and AUD to fall

From Morgan Stanley today comes some sense at last, via ForexLive.

On the NAB survey:

  • decline was led by a noticeable reduction in profitability
  • and trading conditions
  • the lowest level for both since mid-2014
  • The weak business sentiment compounds the decline in confidence we have already observed on the household side

On the RBA:

  • RBA board member, Ian Harper โ€ฆ his personal view that the next rate change will still likely be up rather than down
  • However, financial markets disagree and cash rate futures continued to rally and are currently pricing in 70% probability of an RBA cut in the next 12 months. Funding in the Australian market remains tight, and with 3m AUD LIBOR rising close to two full hikes above the cash rate, we think Australia’s overleveraged households will unlikely receive any help from the RBA anytime soon as the cost of high bank funding flows on to Australian households.

We remain bearish on AUD and expect further erosion of household confidence as the housing market continues its decline.

Hooray for the bleedin’ obvious!


      • Unfortunately the longest I will be able to hold out before buying a house in 12 months.

        I need an epic crash at world beating pace plus AUD through the floor.

        That would require a perfect storm of factors:
        – House prices falling fast
        – Economy rolling over with retail and construction getting smashed
        – Credit tight with RC to make it worse
        – Government paralysed by hopelessness and an impending election to slow any action further
        – Demographic factors as a large proportion of the population reaches retirement age and starts to accelerate liquidation of assets
        – China and global economy weakening
        – Black Swan event uniquely undermining confidence in Australian building standards
        – RBA cutting but banks not passing on cuts

        What have I missed?!?!

      • – immigration reversal, where punters decide to go back home because OZ is not the lucky country, resulting in flood of properties on the market.
        – Change to AirBNB rules ie only owner occupied properties can list, no investment properties allowed to run as illegal motels. Another flood of properties to hit the market, esp in Hobart
        – overseas funding rates increasing dramatically due to drop in OZ dollar and rising international rates.

        I hope you have enough cash to buy out right, because if the Black Swan turns into a dead duck, no one will be able to get a loan and your cash will be king.

      • “missus set a deadline?”. Everyone knew things are getting riskier out there but the marriage has only so much trust especially when prices continue to rise; and life goes on (kids, people want to settle down and so on). Losing the marriage can be even more expensive than the expected falls in house prices I guess.

      • That’s why I was curious. 2018 was a game changer for my wife. Before that, every time she spoke with the girls she’d come back hassling me about when we were going to buy.

        It is not just the price falls that snapped her out of it, but the rapid breakdown in a lot of our friends marriage/family life due to financial strain; some have even had to move away and rent their house out just to keep their head above water (flat out tell us it is financially driven). Tbh, I think this has been more potent than the price falls. It’s ironic, because you’re spot on, a couple of years ago the motivation was to follow everyone else into a house… When the barbie goes from good-natured one upping over how much house prices have gone up to couples openly squabbling and spitting venom, a review of our own priorities is natural lol. Certainly worked on my missus!

      • Brenton – has my missus set a deadline? – yep! ๐Ÿ˜‚

        AK sets it out pretty well.

        Bubbley – good additions. They would help. I reckon my list is actually all either true or potentially true this year so it is possible I will get what I need! Of your list, two could happen soon (not sure Airbnb though…?)

        As for buying just with cash – probably not, although if the AUD goes to 40c and house prices fall 60% I could! ๐Ÿ˜‚. I think that would take more than a year though. I reckon I am a chance of buying a really nice house at 66% LVR in a year though, which would be fine.

        And if I canโ€™t get a loan because no one can, at least it means my deadline gets pushed back!

      • Consider yourself lucky that’s its happening now and you have more information in front of you – in some ways its better you couldn’t afford it earlier. Feel sorry for the first home buyers of the last 3 years; they will feel the carnage of all the changes happening the most and bought at the time when they were the least wise about it all. They probably saved hard for their deposits too. I actually think boomers/most investors will be fine relatively as a group – they will still have plenty of gains/equity and bought after the nesting/kids stage. In the long long term having a house is good but like everything in life timing is key. Sadly timing can be very hard to predict and can change rapidly – a lot happened in 2018 to change the game. 2017 saw a lot of capitulation with the last buying at high prices.

      • All true AK (except one detail- I could have bought earlier but just couldnโ€™t come at the horrific debt required). But holding off apparently makes me a freak – thank goodness for the echo chamber of MB where there are enough other freaks too…

      • Arrow2…are you planning to buy in Canberra? I recall you mentioning you were a Canberran. Do you think you will get a significant discount within 12 months, to the extent expected in Sydney and Melbourne?

      • Arrow, be extremely overly honest and volunteering of spendy habits to the bank, heck even get a credit card limit increase and Afterpay record.

        That way, No Dirty Bank Loan Money for You ๐Ÿ˜‰

        Sorry missus, can’t afford it yet ๐Ÿ˜‰

      • Arrow, I had told my hubby back in 2015 to wait till Dec 2017 for me, things will start looking the way I was saying. He made me promise that we would by as soon as Dec 2017 had passed. I told him it won’t matter, over the next 6 months to mid-2018 that he would be looking, he wont want to buy, so I’m never going to have to worry about keeping my promise. These days, every week I get to hear from him how much money we didn’t lose each week with the amount house prices are dropping.

      • Divya – well played! I am in Canberra so price falls here are just getting started. If it takes off like Syd / Melb maybe I will find myself in your happy situation!

        Rj2k000 – love it! Will do ๐Ÿ˜

      • @A2
        If you can keep your job through the apocalypse you just described you’ll deserve your family home in Point Piper (that costs a mere $300k by then). Good luck and I look forward to the house-warming ๐Ÿ˜‰

        Edit: Oops, Canberra’s version of PP

      • @Brenton
        Sounds like the storm is brewing as expected in the circles in which you move. Here in QLD things are slow but not too bad for now. Definitely a few (associates and connections of theirs) who have lost jobs but most have found new ones, so far — not dream jobs, just jobs that pay a salary so the the mortgage can be met. But it feels like the early days of some pretty nervy times — bits of evidence here and there of higher stress levels etc. Keep the anecdotes coming — they are vastly more valuable than Govt collated data which are tortured, distorted and, er, ‘cleaned’.

  1. Ian Harper is a very fine economist with a very good record over many many years.
    The rollover of business conditions in the NAB survey looks pretty quick, had been quite higher than business confidence for some time. I am very confident that if the data he looks at changes that Prof Harper will change his view.
    But whether that puts him ahead or behind the rest of the market … dunno.
    The nasty thing in the NAB survey was the consistency of the changes by sector … seemed housing related e.g. construction … classic credit squeeze stuff and consistent with news stories around bank lending post RC appearances.
    From a macro perspective a correction in the housing market with a minor dip in lending is one thing … but if it leads to balance sheet retrenchment and forced selling then the door to an old time bust opens. I am quite confident the official family would be doing all it could to avoid that, much as they did in 2008.

    • St JacquesMEMBER

      It’s because of the RBA under the leadership of such worthless “fine economists” who, with their fairy tales, are serving the interests of the big end of town and particularly the banks, that Australia is on the brink of what is likely to turn out to be e a multi decadal socio-economic and political crisis.

    • St JacquesMEMBER

      They are worthless scoundrels, barely able to think for themselves, even if they were inclined to do so. Worse than useless, they are massively destructive social cuckoos…