Markets price out July rate cut

There will almost certainly be no interest rate cut in July as the RBA will look to take a breather and assess another month of data.

Meanwhile, Sydney's property markets look to be demonstrating very strong growth as expected following a series of interest rate cuts.

RP Data is showing very sharp appreciation in its index over recent weeks (more than 2.2% over the past fortnight, if you're a believer in such short timeframes).

Meanwhile Australian Property Monitors reported that (not unexpectedly) it is the inner west which is outperforming the wider market. 

Regular readers will know that Sydney's inner west has long been my favoured sector of the Australian property market.

"Sydney’s auction market continues to track considerably higher than at the same time last year both for clearance rates and listing numbers. Last year’s clearance rate over the same weekend was just 56 percent from 371 auctions.

This weekend’s result closely follows last weekend’s 76.9 percent and reflects the remarkable consistency of the market over the past three months since Easter with weekend clearance rates averaging 75 percent over that period.

The ever popular inner west produced another stunning result on the weekend with an 84 percent clearance rate despite having the highest number of auctions of any of Sydney’s regions. The average auction sale price for a house in the inner west at the weekend was $1,183,167 with the average unit auction sale price $579,467."

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RBA releases chart pack

Maybe I'll do a full analysis of the Reserve's chart pack over the weekend. 

The RBA's latest chart pack runs to 30 May.

While credit growth statistics have only shown a moderate upturn to date, I thought this chart below told an interesting story: namely that housing loan approvals are in a very significant uptrend over the past year, and climbing sharply.

What I really would like to see is the first homebuyer approvals picking up.

I have suggested for the last month or two that this seems likely, but the evidence below has yet to reflect much action in this sector.

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RBA retains easing bias; stocks rocket 2.63%

It just goes to show how wrong technical analysts often get it. It's all very well looking at a chart, but you have to look at fundamentals too. The RBA left interest rates on hold today at 2.75% as expected, but its Statement on Monetary Policy suggested that it retains an easing bias, which buoyed stocks:

"Globally, financial conditions remain very accommodative. However, a reassessment by the market of the outlook for monetary policy in the United States has seen a noticeable rise in sovereign bond yields from exceptionally low levels. Volatility in financial markets has increased and there has been some widening of credit spreads.

In Australia, the recent national accounts confirmed that the economy has been growing a bit below trend over the recent period. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher over the past year and growth in labour costs has moderated. Inflation has been consistent with the medium-term target and is expected to remain so over the next one to two years, notwithstanding the effects of the recent depreciation of the exchange rate.

The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.

The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.

At today's meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand."

Share markets latched on to the potential for another cut and jumped 2.63%, and so markets have bounced quite considerably since the "suckers rally".

Source: ASX

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RBA to hold rates tomorrow

So, it will be an interesting Board Meeting for Australia's Reserve Bank tomorrow with plenty of weak data for the Board to mull over, but on balance the cash rate will probably be left on hold at 2.75%.

The ASX 30 Day Interbank Cash Rate Futures June 2013 contract last traded at 97.285 which (being a lot closer to 97.25 than 97.50) indicates only a small 16% expectation of an interest rate decrease to 2.50% tomorrow.

Or you can get $1.04 for rates on hold and $8.00 for a 25bps cut if the bookies are more your thing.

However, the yield curve remains inverted and the implies that the RBA will cut again by September/October to a new record low cash rate of 2.50%.

Plenty of data to flow in before then which may well make their mind up sooner - will have to wait and see...

Source: ASX

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SMH draws the battle lines

Fairfax's position on the economy is fairly clear, then. Scott Phillips says Australians need to stop whining:

"The "have a go" country has become the "have a whinge" country. "She'll be right" has become "we'll be ruined" and taking responsibility seems to have been replaced with finding someone to blame.

But rather than compound it by whinging about the whingers, here's the optimist's manifesto:

Our economy is in good shape

According to the Australian Bureau of Statistics:

* Gross domestic product rose for the March quarter by 2.6 per cent compared to the prior year.

* Retail turnover for April grew by 3.2 per cent over the past year, and 0.4 per cent compared to March.

* Building approvals rose by 6.3 per cent in volume terms and 11.6 per cent in value terms in April.

* Inflation is smack-bang in the middle of the RBA's target range at 2.5 per cent.

* The unemployment rate is at very low levels compared to recent history at 5.5 per cent.

Lastly, the official cash rate set by the RBA is at an historic low of 2.75 per cent, and the current crop of mortgage holders has likely never seen rates this low."

Pascoe

And Michael Pascoe says that his optimistic views are "more valid than some of the simply bizarre recession squawking that's been heard this week."

Battle lines drawn!

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