Macro Afternoon

By in Australian Dollar, Australian Shares

| 77 comments

Outside of Australia, stock markets here in Asia are bursting in hope and optimism, with new record highs from Wall Street overnight translating into big gains across the region. Japanese stocks were the highest, led by a big selloff in safe haven Yen, while today’s RBA meeting has translated into a big lift in Aussie dollar, now back above 69 cents against USD.

In mainland China, the Shanghai Composite has finally cracked the 3000 point level by lifting nearly 1% to 3005, while the Hang Seng Index is lagging but still performing well, up 0.7% to 27717 points going into the close. Having cleared the 27000 point level, and the weekly downtrend line last week, its plain sailing here:

Japanese share markets reopened from their long weekend playing catchup and then some, with the Nikkei 225 leaping nearly 2% higher to close at 23299 points. This was mainly due to a surge in Yen selling, sending the USDJPY pair back to its mid point of control from last week before the NFP selloff, turning this swing play into a possible new trend as the 109 handle approaches:

The ASX200 is the wet blanket, barely eking out any gains, by closing only 0.15% higher to just below 6700 points, as traders would rather put a punt on the ponies. The Aussie dollar lifted up to and just above the 69 handle on the latest but quiet hold from the RBA, bouncing off weekly support at the 68.75 level:

Both S&P and Eurostoxx futures are up slightly with the S&P500 four hourly chart still showing a stretched overshoot as the record highs pile up on each other, but I’m wary of another bearish rising wedge forming here, using ATR support as an uncle point would prove prudent:

The economic calendar tonight is relatively quiet, with the main focus being the September trade balance numbers for the US later in the session.

Comments

  1. GunnamattaMEMBER

    Statement by Philip Lowe, Governor: Monetary Policy Decision
    Number2019-29
    Date5 November 2019

    At its meeting today, the Board decided to leave the cash rate unchanged at 0.75 per cent.

    While the outlook for the global economy remains reasonably ugly, the risks are tilted to the moist flatulence end of the spectrum. The US–China trade and technology disputes continue to affect international trade flows, there seem an awfully large number of unhappy people in the UK, Hong Kong, Chile and Iraq, and the recent drone attack on the largest oil refinery on the planet offers scope for volatility if any of the often opaque decisionmaking processes revolving around nations and companies in that sector come to the conclusion that another would be appropriate. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system, with solid outlay commitments on education facilities in Xinjiang, a redoubling of efforts of embed facial recognition technologies into the societies of major trading partners, and an island building scheme in the South China Sea which may stimulate like, or reciprocal, outlays in neighbouring states.

    In most advanced economies, unemployment rates are low, reflecting a mature manipulation of statistical frameworks and an ideological positioning, which may of itself be closely related to the debt these populations service, and their ability to do so. Wages growth has picked up only if viewed through a fine oscillation measurement device from a very great height above the claimed rising wages. Inflation may be considered low, in much the same way as the blood pressure of an individual in a coma, where it can be expected to remain, until confirmation is received that the patient has deceased.

    Beyond that, businesses are scaling back spending plans across the developed world, except insofar as their spending is on their own equity or executive remuneration. This is because of the uncertainty about whether the profoundly indebted citizens of the developed world will be able to ever pay that debt back, and their ability to do so even if they continue to try. This uncertainty is couched with the implications on investment dynamics should those citizens ever demonstrate any inclination to suggest debt issuers take their debt and place it long where the sun don’t shine being priced into global markets.

    The above, in conjunction with most developed nations having interest rates nailed to the floor, or below (see Europe), has led to questions being reasonably asked about the value of further interest rate reductions as a stimulator of aggregate demand. Interest rates are very low around the world and a number of central banks have eased monetary policy in response to the persistent downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back over the past month, on realisation that they may not actually be able to go lower, leading to speculation about the word ‘unconventional’ in relation to monetary policy, and financial market sentiment has improved a little. Even so, long-term government bond yields are around record lows in many countries, including Australia. Borrowing rates for both businesses and households are also at historically low levels. The Australian dollar is at the lower end of its range over recent times, but nowhere near as it might be should global financial markets conclude that there is an awful lot of debt marked to an awful lot of people with an awfully bad national competitive position revolving around destroying their way of life with a population Ponzi just to keep real estate prices up.

    The outlook for the Australian economy is little changed from three months ago. The real estate tumor which has grown over more than a decade still lives, despite some hope it may have gone into intermission over the last year and a half in the face of tighter lending standards and a modicum of opprobrium from the financial sector about the findings of the Banking Sector Royal Commission. However the repeated calls for the Commonwealth government to provide fiscal stimulus have been met by calls for the RBA to lower interest rates first, accompanied by exhortations for the banking sector to ‘have another round’ and continue as previously and ignore any adverse findings which leave them less profitable than hitherto.

    After a soft patch in the second half of last year, a gentle turning point appears to have been reached. The central scenario is for the Australian economy to grow by around 2¼ per cent this year and then, after gorging on psychotropics, for growth gradually to pick up to around 3 per cent in 2021 as the mutant star goat with vivid blue eyes from planet Frrwn#439 descends upon the planet to breathe fire on the unbelievers, while the little girl with flames in her hair calls out ‘Mummy! Mummy!’ from the window accompanied by some early Pink Floyd. Close observers are advised to wear shades.

    The low level of interest rates, the feeble response to recent tax cuts, ongoing spending on infrastructure being almost entirely dependent on state government stamp duties, and the Population Ponzi required to support this being obligingly facilitated by the education sector, the upswing in housing prices in some markets is hoped to continue. If it doesn’t then Australia remains captive to sentiment surrounding LNG, Coal and Iron Ore and Chinese enthusiasm for buying more from Australia.

    This potentially volatile external backdrop is anticipated to continue paring domestic debt fuelled consumption enthusiasm. The current, sustained period of only modest (or niggardly) increases in household disposable income can be expected to continue weighing on consumer spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle, on a nation which has exported its manufacturing sector, potentially leaving many trades employees, currently well remunerated in housing construction, to a breathtaking realignment of consumption expectations should they be exposed to employment in aged care or part time retail, let alone non-ongoing public sector employment.

    Employment has continued to grow strongly and has been matched by strong growth in labour supply, with Net Overseas Migration growing by approximately 250 thousand people over the last year, and with labour force participation at a record high, reflecting the desperation of newcomers to take whatever employment they can get, at whatever rate of remuneration that encompasses. The unemployment rate has remained steady at around 5¼ per cent over recent months. It is expected to remain around this level for some time, before gradually declining to a little below 5 per cent in 2021. Wages growth remains face down in the pool and is expected to remain so for some time yet. A further gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range, at which interest rates may have some effect, and at which businesses find meaningful investment (as opposed to tax minimisation) opportunities. Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

    The recent inflation data were broadly as expected, with headline inflation at 1.7 per cent over the year to the September quarter. The central scenario remains for inflation to pick up, with the second coming of The Lord, but to do so only gradually. In both headline and underlying terms, inflation is expected to be close to 2 per cent in 2020 and 2021.

    There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne, reflecting an exhorting press and political figure drive to get Australians thinking that the housing market only really goes up. In contrast, new dwelling activity is still declining and growth in housing credit remains low, suggesting most Australians may not be buying snake oil, and that the coming Christmas could be a pernicious affair for many Australians even if they aren’t spending it with distant relatives whom they barely know. Demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality who aren’t on short term contracts, exposed to the vicissitudes of the housing construction sector, or aren’t otherwise terminable on an immediate to short term basis.

    The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range, but most of all it is supporting housing speculation by those with money to spare – which is not the majority of Australians. Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target – if not some form of electro cardiac event facilitated by specialists in an intensive care ward, or a venereal diseases specialist with a white hot needle applied to the sexual organs. The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time – though the potential for anything the Board does to influence an economy with traditional monetary policy responses is waning by the minute, and a full canvassing of relevant deities may well be considered appropriate for all, with neo-lugubrious being the new black.

    • DingwallMEMBER

      The central scenario is for the Australian economy to grow by around 2.25 per cent this year and then for growth gradually to pick up to around 3 per cent in 2021,” he said. “The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.
      Brighter outlook ?

    • Ronin8317MEMBER

      Your rewriting is simply brilliant.

      I blame it all on Greenspan : he was the Central Banker who started the whole obsession with Central Bank policy speech by making it hard to understand. The ‘market’ unfortunately mistaken the inability to communicate properly as brilliance, and Central Bankers all over the world started to imitate him as well. The plain speech version is so much better.

      • Wing Nut

        The cvnt fvcked around ignoring all the warning signs as the economy imploded then had the audacity to say “fvck me, didn’t see that coming!”. Couldn’t believe that years later, Greenspan was asked for his opinion on economic events.
        Is Josh taking a page out of Greenspans’ book?

      • Jumping jack flash

        Greenspam, the man who couldn’t say “no”.
        The man who decided that the taboo of interest rate manipulation was probably not as bad an idea as everyone before him said it was.

        “…leading to speculation about the word ‘unconventional’ in relation to monetary policy…”

        “Unconventional” is probably befitting for interest rate manipulation.
        “Outright ludicrous, bordering on the absurd” describes QE quite well.
        “Monetary insanity” is apt for anything they will try next…

    • Wing Nut

      Mmmmm, I sense a secondary boycott against the government’s position. Careful, might find yourself sitting next to a public servant from the Foreign Influence Transparency Scheme.

  2. ArthurMEMBER

    Re:
    Specufestors in high-rise apartments
    Jimmy Grants who were promised high paying jobs
    Investors who were promised amazing capital gains on their vacant land in Tarneit
    Students who were promised high-paid careers in film directing by VTF colleges
    etc, etc, etc.
    There is a saying:
    You cannot con an honest man

      • ArthurMEMBER

        Well, Ermo. Not intrinsically. It was a metaphor.
        I suppose I can explain my thinking by pointing out another MB article today, about VC colleges ripping off both students and government money. One I know of in particular was a fillum school in Sydney, now denied funding. They were denied funding because they were training students for a career where there are, perhaps, two vacancies a year in Australia. My point was that it is either naive or disingenuous, probably both, for the students to complain that they didn’t get the promised high-paid career. Maybe it’s my imagination, but I think honest people do not expect easy rides to success.
        So, a bit convoluted, but that’s how I came to include that line of text

        • yeborskyMEMBER

          I’m not quite sure where it fits in this conversation but I have a friend who is an experienced and qualified cinematographer who has been working in a bottle shop for over a decade. Not only is the work not there but there is no sign that it will be again in the future.

    • Arrow2MEMBER

      Obviously you can con an honest man.

      A lot of cons rely on getting victims to go along with something dishonest so they don’t go to the police later.

      But you can con someone honest quite easily, you just lie to them.

      • ArthurMEMBER

        Hi Arrow. I usually agree with you. But not really on this one. I think an honest man is acutely aware of the balance of effort and return. If I lie to him and promise something which results in a return to him which will far exceed his input, then he should immediately become suspicious. He understands the relationship between work and return.
        My definition above, of course, immediately makes all speculators dis-honest people. I am prepared to go with that

        • Arrow2MEMBER

          Yeah, maybe, but they could just be naive, that’s different from being dishonest. Like, is it a con if you just want an apartment to live in, they promise you a high standard of construction and are certified, then it falls down and when you go to claim against the builder they’ve phoenixed? I’d say the victim was naive and easily conned, but not dishonest…

          Anyway, why quibble, if we just string up all the developers AND speculators it will actually go a fair way to improving the place so hey… 😁

    • C.M.BurnsMEMBER

      I empathise with the intent but have to disagree with the language.

      Greedy and Honest are not on the same spectrum. You can be greedy and dishonest. You can also be selfless and dishonest. One is your comfort with the true, the other is how you value (or not) the accumulation of stuff.

      Greedy and Gullible are also not the same axis.

      You could have Selfless / Greedy; and Sceptical / Gullible and chart ppl. You could also have Honest / Dishonest against whatever characteristic you like.

  4. Jacob

    I drove past a restaurant at 2 pm today and its bright spotlights are on. The restaurant is shut today due to a public holiday. It has no solar panels either.

    # struggling restaurants

    • Timmeh

      What dumbfounds me is how Uber can post losses. What exactly are they spending so much money on? They scrape a large percentage off their drivers and all they have in the case of infrastructure is an app? Where the fvck is all the money going?

      • LSWCHPMEMBER

        Paying vibrant slaves bugger all to drive punters around is a cash cow that produces rivers of gold. Unfortunately they’ve blown all their dough on all sorts of speculation… Uber Eats, AI research into driverless cars, strange acquisitions and a pile of other random sh1te. They may have a plan, but it just looks to me like greedy children with no morals enjoying spending other people’s money. Moral hazard writ large.

      • GavinMEMBER

        haha, saw that video earlier today. Some of the details in the beginning are inaccurate but otherwise a good review. Which reminds me now that I’ve shipped my RX-7 down to Melbourne I can get my white 240z moved from down Penrith way to the Inner West and start working on getting it roadworthy (didn’t have the space in my garage before).

          • GavinMEMBER

            Victoria, Glen Eira College in Caulfield. :). Back when it was nicknamed Heroin High!

            15th of May 1997
            Schoolchildren at the Glen Eira College in Melbourne yesterday picketed outside the school gates and refused to go into classes after it was revealed that the school principle had allowed hidden cameras to be placed on the wash basins in the boy’s toilet room.

            The hidden cameras were used to check out claims that drugs were being sold and used in the toilets. The hidden cameras did their work resulting in 17 boys being expelled after they were caught smoking and dealing in marijuana and even injecting heroin.

            Something I’m sure the School works hard to bury and forget all these years later. 🙂

  7. nyleta

    So, it is turtles all the way down……timing fits the repo market rumpus

    https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/TMPG_FICC_presentation_03_07_19.pdf

    And JP Morgan is in it up to its neck…..looks like the Fed is going to bail out every grifter hiding under JP Morgan’s skirt

    https://www.jpmorgan.com/global/research/sponsored-repo

    Rating agencies starting to get some belated religion……..CLO’s getting nervous

    https://wolfstreet.com/2019/11/04/leveraged-loan-downgrades-spike-collateralized-loan-obligations-clo-get-cold-feet-trigger-selloff-b-rated-loans/

    • ErmingtonPlumbing

      Along a similar vein why did “progressives” all embrace an ideology of “personal transformation” that predictably lead to them all becoming selfish bastards!?

      https://youtu.be/ub2LB2MaGoM

      36mins to 40mins has quite the punch line.

      A warning to the prudish though that section of the clip above depicts Reusa style relations parties with a high degree of nudity.

          • skippy

            How long has neoliberal economics and political administration been dominate again, oh yeah 50 years with another 20 years lead in time. So unless you want to argue that immigration was the key factor during that whole time you might have to reconsider your views.

          • drsmithyMEMBER

            Does neoliberalism work without progressives backing mass population growth?

            You seem to have misspelled “immigration”.

            Progressives have little political influence, so obviously yes it works just fine.

        • ErmingtonPlumbing

          Without calling out
          A#fake progressivism how do you think the left can ever be put back on the truly progressive path of working-class economic and political empowerment.
          The self-appointed left leadership don’t deserve to win politically if they are economic conservative.
          This makes them not left or progressive at all.
          migrant communities in particular understand this and vote accordingly

          • skippy

            Remind me whom said everything was a market again – ????? – if so – then that is were groups will strive to make changes because it hits someone in the back pocket.

      • Mega65MEMBER

        From a technical view, we are at major resistance of a very long running down channel. If it doesn’t break this resistance it will head back to the lows again.

        • GavinMEMBER

          Sure, will do. Right now I have to tackle a 2 factor authentication security challenge 1 bank has introduced and that’s slowing me down for Euros.

          My $USD is in Westpac which worries me. Thinking of inverting to $AUD via Currency Fair and then moving to Rabo Bank. Don’t trust the Big 4 right now.

          • drsmithyMEMBER

            Ah, so do you actually have the money still in a foreign institution, or is it local banks with foreign currency accounts ?

            It’s the former I’m interested in.

          • GavinMEMBER

            I have both, specifically I have some Euro’s in Ireland with AIB.ie. Locally I have $USD with Westpac currency account. The AIB bank upgraded security which requires a security key generator to access and log in via the App, up until recently I was able to access the money fine via the App, but because I don’t have the latest bank card (since they sent it to my old address in Ireland) I have to go through hoops to sort that out before I can attempt to transfer the funds back here. Bit of a headache, but luckily my settlement is in Feb next year so I’ve got time.

            Regardless I’ll try and update you once it’s done. I don’t anticipate problems because AIB is quite good I think and I don’t think over exposed this time around. (Compared with 08).

          • drsmithyMEMBER

            Ok, cool. I’m interested to see if bringing a large amount of cash triggers any flags – eg: with the ATO – that will require a “please explain [why we shouldn’t tax this as income and/or capital gain]”.

          • GavinMEMBER

            DrSmithy, I sold about $250k worth of $USD stocks in 1 hit, didn’t have to explain anything. I will eventually be asked to pay some capital gains however. But that will be done during tax return.

  11. Freddy

    “Following careful consideration and consultation between Treasury and the RBA I have concluded that the existing statement is consistent with the government and the RBA’s shared understanding of our monetary policy framework,” Mr Frydenberg said.

    I read that as a big F U to the RBA. Stick with the 2-3% inflation target and cut teh rate.

  12. Wing Nut

    What other garbage was thrown out today between the RBA’s monthly moment and the Melbourne Cup?

    “Coalition’s $200m regional jobs and investment program fails to meet audit standards”

    Ministers declined to fund 28% of grants recommended by officials, and approved 17% that had not been recommended to them

    Spoiler alert: Michaelia Cash was involved.

    https://www.theguardian.com/australia-news/2019/nov/05/coalitions-200m-regional-jobs-and-investment-program-fails-to-meet-audit-standards

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