Australian interest rates

By Leith van Onselen MB’s long-held view that the next move in official interest rates will be down has received support from money markets, which now ascribe a 50-50 chance of cuts by the end of the year.

By Leith van Onselen Slowly but surely, economists are falling into line with MB that the next move in official interest rates will be down, most likely this year.

You’d have to be as blind as the RBA to miss the signals.

Via the AFR: When looking back at asset performance in 2018, it is a great reminder that bonds should play a major role in an investment portfolio, and that not all bonds are created equal.

Via the excellent Damien Boey at Credit Suisse: In 2018, one of the major themes we wrote about was the risk of impairment to the monetary transmission mechanism via out-of-cycle rate hikes.

As predictable as the Sun rising: BOQ today announced interest rates across a range of lending products will be increasing by between 11 basis points (bps) and 18 bps.

Via Martin North: Digital Finance Analytics (DFA) has released the December 2018 mortgage stress and default analysis update.

It couldn’t happen to a nicer central bank.

For anyone paying attention, one of the H&H’s excellent calls a few months ago was to get long Australian bonds as the RBA’s fantasy of future growth ran into the nasty reality of a housing and China bust.

Via Bloomie over the weekend: President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell as his frustration with the central bank chief intensified following this week’s interest-rate hike and months of stock-market losses, according to four people familiar with the matter.

Bravo Chris Joye who appears to be the only other writer with any balls or brains in the financial press today: RBA governor Phil Lowe needs to pull his head in.

Yes RBA, you are behind the curve.

Via the UBS rates team today: The RBA Sentiment Index – our proprietary tracker for hawkishness/dovishness in the RBA minutes – shows that the bank’s tone turned more dovish at its meeting in November.

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.

Minutes from the silly bastards at the RBA: International Economic Conditions Members commenced their discussion of the global economy by noting that conditions had remained positive, particularly in the major advanced economies, where growth had remained around or above potential and labour markets had continued to tighten.

The AFR is reporting as much: Banks will be forced to pay financial compensation and remediation to every bank customer who has been wronged, as the Labor Party signalled a tough response to the Hayne royal commission if it wins power.

New flats for the belly of the Aussie yield curve today as the 2/5 tracks towards inversion, only 8bps to the good now: The US has already inverted of course and we appear set to follow: Inverted yield curves are a reliable indicator of recession but they tend to be early in the forecast.

Via Ian Rogers at Banking Day: A Tier 1 capital ratio of 16 percent of RWA is needed to ensure the banking sector retains creditor confidence after enduring an extreme shock.

In good news for Australia, last week’s break into the open of RBA corruption met with little media response on the weekend.

Via the excellent Bill Evans at Westpac today: What do our economic forecasts for 2019 mean for Investors?

APRA released it quarterly ADI property exposures yesterday and banks continue to defuse the interest-only time bomb.

Oh yes, via Bloomie: In the bond market, the yield curve for overnight index swaps — a gauge of expectations for short-term rates — has inverted, showing that traders expect the RBA’s cash rate to be slightly lower than the current 1.5 per cent in a year’s time.

The politico-housing swamp has entered a corruption blow-off.