Lunatic RBA will surely cut in June

Let me run you through some charts from the NAB business survey to make the point. Westpac does a nice job of drawing them up year over year. Headline indexes are back to 2013/14:

Employment too:

And forward orders:

Capex is a bit better but not for long:

All cyclical industries are folding:

States are converging on universal weakness:

In short, the economy has already regressed to the 2013/14 period when the RBA slashed rates four times (with four more ahead):

And this this time around the RBA is also toying with a property bust that could pass a tipping point for banks at any time. Nobody knows when, including the RBA.

First of four cuts must come in June.

Comments

  1. I agree rates should be cut the private sector is burnt toast. The RBA had enough evidence of a slow down in the economy and to cut rates at the May meeting and haven’t. Why would they change tact if jobs numbers are to remain OK?

    If they do cut rates in June because thousands have now become newly unemployed, than Lowe should be forced to join them.

    • NAB survey was the only private survey supporting ABS. It’s now broken too. Is very highly regarded.

      Election over.

      Stupid to wait at this point. But then, they are stupid….

      • BubbleyMEMBER

        HnH – I was talking to a bank manager yesterday about the best place for a term deposit and was told in a matter of fact manner that the next rate cut would be .50% and another of .25% before the end of the year. It seems that the banking industry is well aware of what is coming and they will dropping accordingly (this bank will not drop the whole .5% to start with)

        The conversation lasted for over 45 minutes and started because I was getting my merchant fees reviewed, it then went to term deposits and the state of the local real estate market (Darwin now need a 40% deposit for apartments)

        It was a very illuminating conversation.

      • hareebaMEMBER

        Winx was $1.05 at her last start. And she won 33 races in a row.

        Labor is $1.18. Certainties.

        June interest cut ….. should be $1.01. Absolute certainty.

    • +1, if we haven’t seen inflation with record low rates, what makes anyone think we will see it with even LOWER rates again?

      • Jumping jack flash

        Yes, that is the problem.

        And the other problem is that everyone (especially the banks’ banks) still believes that inflation can be controlled by interest rates. If they cut, and nothing happens, there’s no control.

  2. And what exactly do you think more interest rate cuts will achieve? because they have worked so wonderfully to this point, do you think we can Kick the can down the road a bit further ? inflate asset prices that bit more? Time for the Austrians to take center stage, the Global economy should have taken it’s medicine in 2000 and we would not be in this mess, with mountains of debt and sky high asset prices. Long live Ludwig

    • My cynical view here – It’s fiat money and all make believe anyway. Therefore we can just keep “kicking the can” forever if we want especially if everyone else is also doing it (and they are). When we get to the 0% bound we just print money instead like every western economy is doing. Currency exchange rates will be determined by who prints fastest (i.e. all currencies are declining, just at different rates). Rinse and repeat. Debts (e.g. savings) diminish in value over time this way and the Western world has its free lunch for longer. More importantly the velocity of money continues as people who “borrow and spend” adding to velocity and therefore economic activity are rewarded.

      • Jumping jack flash

        Infinite debt!

        They’re surely having a red hot crack at it.
        Its never worked before, but this time for sure!

        The problem is the interest.
        Debt can be cheap, but never free.
        If debt was free, banks couldn’t exist, and banks create the debt.

        as debt approaches infinity, interest must approach zero, but it actually can’t in reality.

        We’re a long way away from infinite debt, and our interest rates are already close to zero to sustain it.

      • Not very nice for people relying on savings or with fixed incomes. Any how about if hyperinflation sets in, as in French revolution, Weimar Germany & 1990s Zimbabwe? Maybe fiat currencies should be pegged to a basket of commodities, or to house bricks (not ‘precious metals’ or other currencies).

      • Jumping jack flash – your assuming that debt is the only increase to the money supply. Just print money until you achieve 3% inflation. Prices rise, debt stays the same. Balance sheet ratios repair causing another debt boom. Print money to inflate away correction keeping inflation at 3% offsetting debt payments. Rinse and repeat. Everyone else is doing it. Of course fixed incomes get screwed, but most Australians are debtors not creditors so this suits the majority.

    • As per my comment above, interest rates are just politics now, at least in this point in the super-cycle.

      The exception is H&H’s thesis of what impact it might (probably will) have on the AUD, and the possibility of trading our way out of the quagmire in the medium-term.

      • Jumping jack flash

        politics or not, interest rates actually have an effect on the amount of money extracted out of the economy each week.
        The more debt, the more money is extracted. Interest rates approach zero, but can never be zero, at least not for the people who own the debt, who pay the interest, who participate in the economy.

        I think you mean the “cash rate” has denigrated into politics, that is probably true. The actual interest rates on mortgages that people own are very, very real.

        ” and the possibility of trading our way out of the quagmire in the medium-term.”
        Yes! But that depends on whether the amount we produce and trade is greater than the interest we pay. Its a domestic problem affecting the domestic economy.

        Of course, as you say, the best solution is that we need to bring real money into the country from outside so we can repay our interest on our trillions of nonproductive debt dollars attached to houses. The best way to do that is through trade, and the most obvious way to boost trade is by making our stuff cheaper for other countries to buy. But whatever money we bring in through productive activity is going to be taxed by the interest (and NOT the cash rate) on the massive, massive (and growing) wad of nonproductive debt we have here.

  3. 2 predictions for you guys. 1/ LNP will win the election. 2/ RBA won’t cut in June and won’t cut before the US fed does.

    A crashing AUD will do more harm to the lived in economy here than any realised benefit of reduced rates.

    • TighterandTighter

      Little voice in my ear agrees with you on 1. Nagging doubt. Chucked 10 on em just in case not that will ease the pain
      (Though if they legislate their higher income tax cuts, I’ll stop caring and BOOYEAH)

    • LNP Win? Oh dear… that would suck. I can’t imagine happy clappy ScoMo actually being elected.

  4. SweeperMEMBER

    It is academic now they should have cut at least a year ago and kept cutting. They won’t get traction now as housing is dead and recessionary expectations have taken hold.
    Hopefully Labour are elected and can the FY20 budget in favour of stimulus.

  5. My theory why they didnt cut in May is because the market didnt expect them too, and therefore if they did they may have caused panic.
    In the RBA forecasts, they used market expectations of two rate cuts to forecast GDP growth. (I find this astounding. Has that been done before?)
    The market is not pricing a rate cut in June, but is pricing a rate cut in July. So looks like we will have to wait to July.
    I thought the RBA was supposed to be ahead of the curve, instead of following the curve, but does not seem that way.

    • BubbleyMEMBER

      They didnt cut in May because it was 2 weeks before a federal election. Any impact would have been lost in the melee of politicians fighting for their seats.

      They need to get maximum impact because the RBA only has 1.5% to work with. See my comment above about what a bank manager said to me about interest rates.

  6. “with four more ahead”
    But more importantly, only 4 left. And then it’s game over for so-called “monetary policy”. If it isn’t already.