Macro Afternoon

See the latest Australian dollar analysis here:

Macro Afternoon

So far its been a neutral day for risk markets here in Asia as traders weigh up the potential volatility around the ongoing trade war between the US and China while locally a slew of bad economic news has firmed expectations of a rate cut by the RBA as the Australian dollar remains depressed agianst USD.

The Shanghai Composite is treading water slightly above 2900 points, currently down just a few points, while the Hang Seng Index is doing a bit better, up 0.3% to 27740 points finally not making another new daily low and getting a little bit of confidence back:

US and Eurostoxx futures are flat lined here with the four hourly chart of the S&P500 chart showing a desire to get back above last Friday’s high but so far, no new highs is weighing down this market, wheret he upside target is at 2870 or so:

Japanese share markets are up slightly despite a firmer Yen, with the Nikkei 225 currently up 0.3% to 21337 points while the broader TOPIX is treading water. The USDJPY pair has failed to make a new high since last night’s session which was overcooked after the recent breakout above the 110 handle and could retrace there tonight if risk sentiment doesn’t improve:

Australian stocks are also treading water, with the ASX200 still above the 6500 point barrier, but only advancing a few points. The Australian dollar looks to have already priced in the next rat cut, not reacting against the very poor construction numbers this morning, but watch the recent series of session lows which could break tonight:

The economic calendar is packed tonight with central bank catalysts including speeches by President Mario Draghi at the ECB and then the release of the latest FOMC Minutes. There’s also the April UK CPI print and another DOE oil inventory report.


Latest posts by Chris Becker (see all)


    • Thanks for that. Nice find.

      ‘The expression they used, and we kept hearing it again and again and again, is, ‘I know a bloke who can get things done’,” Mr Hempton said.’……….Any mortgage broker can make that happen!

      ‘She told us we should draw our credit card to the maximum to get the biggest deposit we can so we can buy a house now rather than save for a deposit, (because) house prices go up faster than you can save,” he said.
      “She sad it will ‘go exponential’. She didn’t know what exponential meant. She said, ‘You should get credit cards against other banks so it doesn’t show on our system.’ It’s pretty astonishing’………………….Shhhh, don’t give ScoMo any more dumb ideas.

      ‘But if 40 per cent of the loan book is lent to those standards then you look more like Ireland, all the banks get wiped out. If 50 per cent were at that standard this bubble’s going to end with a very, very, very hard landing.”
      At 25 per cent it will be a “garden-variety recession”, something Mr Hempton predicts is a 70 per cent chance in the next two to three years.’……………..Westpac admitted 50% of its book was interest only. Most of those loans were the common garden variety of ‘dogtish’ as the lads in ‘The Big Short’ more eloquently put it.

      • @ Jimbo

        The banks won’t get wiped out because the banks ensured that clients have mortgage insurance and they will just sell the rest of the loans/properties at a loss to the US Hedge funds.

        This happened in Spain and I believe also in Ireland.

        Property prices have now increased and the hedge funds are making a motza.

  1. proofreadersMEMBER

    How good is that, Straya? Is Captain Phil looking like wearing the title for the housing price reflation bubble and the recession we are about to have?

  2. So… house price growth when an economy is in recession…is that a thing? Know of any examples?

    [Genuine question, btw]

    • proofreadersMEMBER

      I advanced this hypothesis in a separate post to another MB article earlier this evening.

      In this bizarro world that we live in, I think that a housing price reflation bubble and an economic recession in Straya are entirely logical (indeed, eminently sensible). Moreover, a related ASX stock market bubble is also eminently sensible.

      How good is that, Straya?

      • Thanks proof.

        Wouldn’t diverting financial resources into housing and away from broader economic repair ultimately make any recession deeper and longer (though I suppose in that scenario we’d eventually see massive stimulus on all fronts)? Wouldn’t unemployment, a lower dollar and shot houshold balance sheets converge to drag down housing…eventually?

    • J BauerMEMBER

      That’s easy. Two possibilities come to mind.

      1. People who previously couldn’t borrow spent their $ in the broader economy. they can now buy a house with the APRA changes and therefore stop spending in the broader economy and put every cent into their mortgage and strata fees. housing goes up, economy goes backwards.

      2. Money from overseas reflates the property market, no value is added to the broader economy as new aussies aren’t big spenders. This is evidenced by retail sales going backwards despite record levels of new aussies.

      • Over the last two decades, in both cases any growth at all in land values gets regularly refinanced and gains are sprayed all over the economy via consumption. HELOC style. This is the one and only strategy these muppets have for maintaining a ‘healthy’ economy. Are we saying land values will continue to grow without any economic support or link to real incomes ad infinitum? In other words how many other rabbits are left in the hat?

      • Thanks JB.

        Re scenario #1…I see that as a plausible near-term case. But for how long can the economy go backwards before unemployment increases to the point the mass defaults start to occur?

    • Sure why not? House price only go up remember? Recessions are just speed bumps 😀

    • It could happen in an economy where house prices are low and net housing debt constitutes a small proportion of total debt. This isn’t the case in Australia.

      Total private sector debt in Australia is ~3 trillion, of which ~1.9T (63%) is allocated to housing (

      For house prices to rise in Australia, housing debt must increase. To have an overall recession, there must be a decrease in debt within the rest of the economy (assuming no change in public sector debt or the current account). This means that a contraction within the 37% of private debt that is non-housing related must overwhelm the expansion within the 63% of private debt that is housing related. Unlikely.

      Also, given that much of the ability of people to support debts in the 63% segment is dependent upon activity in the 37% segment, I’d say we have a non-starter.

      This economy IS the housing bubble, which is why I’ve been so confidently predicting (for years now), that when the housing bubble pops, we’re going to see a shocking increase in government debt, up towards Japanese levels.

      Post crisis:

      – cash rate to zero (ZIRP).
      – government debt up to ~160% of GDP to fund bailouts within the private sector.
      – AUD down to mid 0.40s, possibly touching high 0.30s.
      – political chaos and a destroyed middle class.

      All completely predictable and avoidable if we weren’t run by crooks and muppets.

      Pre-crisis, we have an RBA that’s stuck like a deer in the headlights, holding rates steady in the hope that the situation resolves itself. They can’t raise rates as it will detonate domestic borrowers, and they can’t cut rates into a strengthening global economy because it will tank the AUD and detonate Megabank. They just cross their fingers and hope that the global economy slows down and sinks back into phase with the Australian economy so that maybe they can cut safely. That does seem to be happening now, but it fundamentally does not solve the problem.

      • Or the RBA can continue to do what it’s populist, ignorant masters tell it, ala today’s ‘meeting’ with ScoMo/Frydenburg. Independent. Not a chance.

        Nice post BTW.

      • @jimbo: I sure enjoyed their little “accidental” probe of the AUD the other day (projecting a rate cut).

        The AUD is drifting down towards the GFC support level (~0.65). That’s a strong support level that has been tested a few times. If it breaches that support, then it’s clear air all the way down to 0.50, which would be a disaster for Megabank and detonate the crisis.

        So the RBA’s strategy now is to project possible rate cuts and probe the AUD. If the market prices in a cut and holds above support, then the cut is good to go. If the market starts challenging support, Lowe “surprises” everyone by holding.

        Maybe I’m giving Lowe more credit than he deserves, but it’s certainly a tricky little game that I’d be playing if I were him. Should be good to use it for the next 6 months or so before everyone wises up.

      • What is wrong with Japan, except for those that prefer a commodity money paradigm.

      • @skip: I didn’t say there was anything wrong with Japan. I said that people will be shocked by the rapid increase in debt up to Japanese levels (incidentally why I am long bonds and loving it).

        If we’re smart, we’ll copy Japan’s playbook. I don’t think we’re that smart.

    • Arthur Schopenhauer

      If the dollar drops to US$0.50 it’s likely house prices will stay high, mining & education boom and the rest of the economy grinds to a halt.

      • Dollar low = $2.50 petrol, $$$ gas and power, $6 per avo, new cars rise in $, etc, etc. Something tells me this time is different and they know it. There is so much desperation from the media, government, APRA, RBA at the moment all in one concerted effort. There will be a short term boost no doubt but I don’t think it will last unless we see proper wage rises or something which won’t happen

      • Serious question Arthur: with the AUD at 50c, why would house prices necessarily stay high then?

    • DominicMEMBER

      House price bubble = High as a Kite Sentiment + Credit Availability.

      That’s it. Only one of those two? NFH.

    • DominicMEMBER

      Yes. Anywhere there has been massive money printing / creation. The high / hyper inflation examples

      • DominicMEMBER

        Er, Weimar Republic, Zimbabwe, Venezuela , Argentina. To name a few. Coming to a shore near you. Esp once MMT and /or UBI gets underway. Money back guarantee.

      • Dominic,
        The underlying economy needs to collapse pror to printing for hyperinflation to occur. The countries you highlight were in a mess regardless of the money printing. Japan is the Buddha, Shiva, Zeus, God and Allah combined of printing and it can barely create inflation. It was in a different type of mess but was still a functional country.

      • DominicMEMBER

        It can’t create inflation because it hasn’t tried MMT yet. The problem that Japan has is that its money supply growth rate is anaemic, primarily because when it enacts QE most of it goes directly to ‘reserves’ and not deposits. Added to which, the normal channels for credit expansion, the private sector, are actually declining — population decline, causing downward pressure on money supply growth (ceteris paribus).
        Trust me, once Govts start putting money directly into people’s bank accounts it’s over, Rover.

      • Dominic Japan uses MMT as does others, difference is how distribution is administered via political and ideological preferences is where your optics [hard money] blur the reality. Suggest you forget everything you think you know and look at it without any biases.

        I mean the expectations of some when 24T-ish was deployed post GFC strongly suggest those optics weakness.

      • DominicMEMBER


        I confess, I read what you wrote two times and I have no idea what you’re talking about. I traffic in logic not magic. Let’s leave it there shall we.

    • Ha that was an interesting listen danke. Some of those property income ratios and bank kulcha behaviour was illuminating. The NW Sydney bank manager was at least in part correct that property prices increase more rapidly than being able to save, the exponential property price call was funny. The thonged white shirt one even gets a mention.

  3. Well, lots of bull porn again today. Fortunately I’m on the ground and at the coal face and I can tell you there is going to be no rise in property prices. Agents are going broke, properties are not selling and Peachy is full of shit.

    • Yep. They will get the drill hole right the next time.

      Canberra does have strong tree protection laws and that particular ritzy shopping street is nice partly because of the trees. Nice autumn colours.

      It is going to have an accident though. Isn’t it.



    This was backed by My Housing Market chief economist Andrew Wilson.

    Mr Wilson said the policies and the Coalition’s victory would eventually create a “more rational” view of the property market.

    “We were already starting to see green shoots,” Mr Wilson, an independent commentator and former chief economist at Domain, said.

    “There was no doubt that [auction] clearance rates were trending up and pricing models were showing a slowing in the rate of decline.

    “But we’re coming off a very low base and there is an extremely low rate of property on sale in the market.”

    Mr Wilson said he was taking a “wait and see” approach over the coming months.

    “We’ve got peak supply of apartments right now, there’s lots for sale out there,” he said.

    “And the cutting of rates is always a double-edged edged sword — it’s a positive for housing affordability but signals a growing concern over the state of the economy.”

    So if Green shoots were already showing, why do you need to add an interest rate cut? The economy is farked..

    • I just assume that any statement using the expression green shoots is really just an aspirational lie.

  5. The easiest way for Australia’s housing stock to come down to more affordable levels – depreciation of currency.
    All the tourists up here complain that Australia is high cost place to visit; when they can get two aussie dollars for their benjamins, some of this criticism would wane. Would also keep some of our young onshore and not keen to jet off for a year or two before they start work…