Suddenly Central Banks and Governments have the perfect alibi (a claim or piece of evidence that one was elsewhere when an act, typically a criminal one, is alleged to have taken place) to account for years of poor policy, as costs of living, and inflation are rising. And as RBA Deputy Governor Guy Debelle leaves the bank – does he see the writing on the wall?
The latest edition of our finance and property news digest with a distinctively Australian flavour.
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RBA Governor Phil Lowe has just delivered a speech entitled “Recent Economic Developments”, where he pushed back against predictions of imminent rate rises, but noted that “it is plausible the cash rate will be increased later this year”
RBA Lowe said “I recognise that there is a risk to waiting too long, especially in a world with overlapping supply shocks and a high headline inflation rate. But there is also a risk of moving too early.” Inflation – which has climbed to 3.5 per cent in Australia could climb towards 5 per cent by the middle of the year.
The take out is that RBA won’t lift the cash rate until it sees evidence that wage growth has risen above 3%, which is unlikely to be achieved until late this year. The bank will take a ‘wait-and-see’ approach, which is at odds with market expectations.
Financial markets and many economists expect the RBA to start lifting interest rates, currently at 0.1 per cent, as early as June because of the building inflation pressures across the economy.
Economists at the NAB on Tuesday became the latest to pull forward their interest rate expectations, tipping three rate rises through the second half of the year.
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The Federal Reserve two-day meeting will conclude on March 16. Ahead of the meeting, the Fed Chief needs to testify, and the markets will be able to determine if the Fed will increase rates by 25-basis points or even nothing.
The key question is whether the Fed will hike the cash rate in the face of the Ukraine storm – a storm which risks spilling out across Europe and into financial markets, which have already reacted badly as the risks started to dawn.
Hopes that commodity prices had put in a high near the end of last year now appear to have been dashed decisively. At the same time, the point at which raw material prices begin to take headline inflation rates lower is moved further into the future. Economists’ forecasts still call for a peak in inflation some time in the next few months — the Ukrainian conflict looks as though it will delay that peak.
In fact Commodity prices soared the most since 2009 as Russia’s invasion of Ukraine threatens key supplies of energy, crops and metals that were already tight as major economies emerged from the pandemic.
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Today’s post is brought to you by Ribbon Property Consultants.
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The English expression “a Birmingham screwdriver”, meaning a hammer, refers to the practice of using the one tool for all purposes. Hence if the only tool you have is a hammer, to treat everything as if it were a nail. The law of the instrument, law of the hammer, Maslow’s hammer (or gavel), or golden hammer its all about a cognitive bias that involves an over-reliance on a familiar tool.
What if raising interest rates was the hammer, and inflation is not what it seems?
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.
Buying property, is both challenging and adversarial. The vendor has a professional on their side.
Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.
Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
Glass Half Full Lowe signaled a major shift in the bank’s outlook for the cash rate at the RBA’s annual address to the National Press Club in Sydney on Wednesday, striking an upbeat tone in the economy but downplaying local inflation risks and to explain the central bank’s rationale and its forecasts for the year ahead.
In his subsequent remarks he gave some “Financial Advice” saying rates may well rise, and households should have some buffers. Sound of door slamming shut after the horse has bolted…
Interest rates could plausibly lift off later this year if the economy continues to outperform expectations, Reserve Bank of Australia governor Philip Lowe has conceded, but he repudiated markets pricing four rate hikes in 2022.
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.
Buying property, is both challenging and adversarial. The vendor has a professional on their side.
Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.
Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
Today we heard from the FED after their meeting, and the language was still vague and I thought unconvincing. In his press conference that followed the Fed decision, Powell said The Fed’s monetary policy actions have been guided by their mandate to promote maximum employment and stable prices for the American people. There was “quite a bit of room to raise rates without hurting jobs,” stoking expectations that the Fed’s plan to tighten monetary policy measures, which have underpinned risk assets, may be more aggressive than expected.
He said we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Federal Reserve will do everything we can to achieve our maximum employment and price stability goals.
They are still buying more bonds, so increasing their balance sheet, and did not change their interest rate target. As a result, the S&P 500 closed lower Wednesday, as tech gave up some gains on surging U.S bond yields after Federal Reserve Chairman Jerome Powell hinted that there was plenty of runway to raise rates, with the first hike widely expected in March.
“Powell during the question session here is creating a bit of uncertainty, and I think that’s why the market is reacting this way. He’s talking about inflation might worsen, bottlenecks might get worse. What he’s trying to do is prepare the market for a worsening situation and also trying to balance the fear factor. But it seems the responses are creating an atmosphere of uncertainty, which is a negative for the market”.
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side.
Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
Yesterday I warned about higher market volatility given all the moving parts in play at the moment. Well, we saw that in action again on Tuesday as FED Chair Powell gave evidence at the Senate Banking Committee.
Back in December Powell said “One of the two big threats to getting back to maximum employment is actually high inflation.” He stressed that getting back to pre-Covid levels of labor-force participation would require a long expansion, which couldn’t happen with runaway price growth.
This marked a shift in how he discussed the trade-off between wanting to see greater improvement in the labor market and tolerating persistently elevated consumer price growth. So the new line is that increasing interest rates and tightening monetary policy is a benevolent move on the Fed’s part. And this was in evidence on Tuesday when he said “In a way, high inflation is a severe threat to the achievement of maximum employment,” he said. “We think wages moving up is generally a good thing, but if you look back through history, there are times when wages have moved up in a way that has fostered persistent inflation, and that hurts everyone.”
This is a deft move on the part of Powell, who earned respect among both Democrats and Republicans for the Fed’s response to the onset of the Covid-19 pandemic.
The latest chat with Journalist Tarric Brooker, as he walks us through his latest charts, just in time for Christmas. He is on Twitter as @Avidcommentator
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Central Banks have created a monster, thanks to ultra-low interest rates, easy lending rules, and backed by Government stimulus. That monster is high house prices, the growth of which has accelerated through the Pandemic, with New Zealand, Australia, and the UK at the top of the charts.
As a result, banks have lent big, with larger mortgages and a greater share of lending going to the housing sector. APRA recognised the risks in mortgage lending by lifting the so called buffer rate back in October, reducing the amount borrowers can obtain, by a maximum of around 6%. It is obvious risks are rising, as now interest rates are turning higher – the Bank of New Zealand has already lifted strongly, and the Bank of England lifted this past week.
But that creates a problem, in that of home prices start easing, the so-called wealth effect is reversed and people spend less, while if prices slide the banks’ balance sheets get hollowed out and more capital which is costly is needed, to the point they might ease back on new lending.
And of course, for first time buyers who have recently grabbed larger mortgages, negative equity haunts as an outcome. So, we think Central Banks will do their most to try to keep prices up, and growing, despite the debt overhang.
The UK is a good case study. U.K. house prices probably will struggle to rise in 2022 after two strong years of increases, one of the nation’s largest mortgage lenders said.
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Wall Street finished lower on Friday, weighed down by Big Tech as investors worried about the Omicron coronavirus variant and digested the Federal Reserve’s decision to end its pandemic-era stimulus faster.
Stock moves were magnified by intense activity in the options market, potentially making Friday one of the busiest trading days of the year due to the S&P Dow Jones Indices quarterly re-balance, which comes into effect after markets close on Friday. It is also “quadruple witching” day in U.S. markets, when options and futures on indexes and equities expire. With options expiring, volume on U.S. exchanges jumped to 16.6 billion shares, far above the 11.9 billion average over the last 20 trading days on Friday.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Witches, Virus, Central Bank Volatility Dance – Market Update 18th December 2021 [Podcast]
