Tag: RBA

Households In The Cross-Hairs As Real Wealth Falls…

The latest from the RBA – Statement On Monetary Policy November 2023, outlines the bank’s latest thinking. The Reserve Bank updated its economic forecasts, which explain why it raised interest rates this month – from 4.1 per cent to 4.35 per cent after four consecutive pauses. And importantly, it shows just how the economic engine is misfiring, with households very much on the front line.

While the business sector, overall, appears to be doing fine, it appears working-age households will continue to do the heavy lifting on containing inflation via higher interest payments, cutting their individual consumption and falls in real wages that are expected to continue until the middle of next year. And due to the combination of stubbornly high inflation and relatively weak income growth, the RBA now expects real household disposable income — a key measure of living standards — to keep sliding sharply until the second half of next year.

And to underscore this, recent OECD data shows that Australian households have suffered the biggest fall in real per capita household disposable income of any advanced economy over the past year. In the 12 months to June, Australian household incomes slumped 5.1 per cent, the sharpest fall recorded across the OECD.

Real view management of the monetary settings from the RBA are simply not working.

https://www.rba.gov.au/publications/smp/2023/nov/

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Unicorns Or Black Swans? With Tarric Brooker

Anther Friday chat with Tarric Brooker. We look at the latest charts and parse out what is going on.

https://avidcom.substack.com/p/dfa-chart-pack-3rd-november-2023

https://avidcom.substack.com/p/australia-vs-the-big-short-the-battle

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Unicorns Or Black Swans? With Tarric Brooker

Anther Friday chat with Tarric Brooker. We look at the latest charts and parse out what is going on.

https://avidcom.substack.com/p/dfa-chart-pack-3rd-november-2023

https://avidcom.substack.com/p/australia-vs-the-big-short-the-battle

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Unicorns Or Black Swans? With Tarric Brooker
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A Question Of Democracy: With Senator Gerard Rennick

I caught up with Queensland Senator Rennick, and discussed a range of important issues including the accountability and independence of the RBA, regional banking and the digital divide, the digital content bill, and finally, and importantly the role and effectiveness of democracy.

Gerard Rennick is an Australian politician who has been a Senator for Queensland since July 2019. He is a member of the Liberal National Party of Queensland and sits with the Liberal Party in federal parliament.

On 8 July 2023 at the LNP Annual Convention in Brisbane, Rennick lost preselection for the third position on the LNP’s senate ticket for the next federal election, after being narrowly defeated by Stuart Fraser, the party’s treasurer

https://en.wikipedia.org/wiki/Gerard_Rennick

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
A Question Of Democracy: With Senator Gerard Rennick
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A Question Of Democracy: With Senator Gerard Rennick

I caught up with Queensland Senator Rennick, and discussed a range of important issues including the accountability and independence of the RBA, regional banking and the digital divide, the digital content bill, and finally, and importantly the role and effectiveness of democracy.

Gerard Rennick is an Australian politician who has been a Senator for Queensland since July 2019. He is a member of the Liberal National Party of Queensland and sits with the Liberal Party in federal parliament.

On 8 July 2023 at the LNP Annual Convention in Brisbane, Rennick lost preselection for the third position on the LNP’s senate ticket for the next federal election, after being narrowly defeated by Stuart Fraser, the party’s treasurer

https://en.wikipedia.org/wiki/Gerard_Rennick

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Will The RBA Blink First?

On Melbourne Cup day we will get the next RBA cash rate decision. Michelle Bullocks testimony before the Senate this week was pretty vague – waiting for data, will update forecasts etc.

But as Christopher Joye writes in the AFR, following the material upside surprise to inflation in the September quarter, almost all economists and investors agree that the Reserve Bank of Australia should lift interest rates in November.

But participants worry that a concerted campaign to politically compromise Australia’s central bank may result in the RBA remarkably choosing not to seek to combat its existential inflation crisis.

This would be the latest in a chapter of accidents, with the RBA cutting rates too low, and stoking the economy via the Term Funding Facility, and Quantitative Easing. Their yield control attempts went wrong, and then they held rates way to low, promising no hike for years. And their forecasting is a disaster.

This is a central bank with a 4.1 per cent cash rate that is just a smidge above what it assesses to be the neutral rate of 3.8 per cent. And that is a cash rate that is 1.0 to 1.5 percentage points below peer rates in the US, Britain, Canada and New Zealand.

Even the RBA’s outgoing assistant governor Luci Ellis, who is now chief economist at Westpac, called a “hike” only days after she predicted that inflation would not be robust enough to warrant one.

In sum, we know the RBA should hike in November. Whether it actually does or not appears to now be a question of its ability to resist political interference.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Will The RBA Blink First?
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Will The RBA Blink First?

On Melbourne Cup day we will get the next RBA cash rate decision. Michelle Bullocks testimony before the Senate this week was pretty vague – waiting for data, will update forecasts etc.

But as Christopher Joye writes in the AFR, following the material upside surprise to inflation in the September quarter, almost all economists and investors agree that the Reserve Bank of Australia should lift interest rates in November.

But participants worry that a concerted campaign to politically compromise Australia’s central bank may result in the RBA remarkably choosing not to seek to combat its existential inflation crisis.

This would be the latest in a chapter of accidents, with the RBA cutting rates too low, and stoking the economy via the Term Funding Facility, and Quantitative Easing. Their yield control attempts went wrong, and then they held rates way to low, promising no hike for years. And their forecasting is a disaster.

This is a central bank with a 4.1 per cent cash rate that is just a smidge above what it assesses to be the neutral rate of 3.8 per cent. And that is a cash rate that is 1.0 to 1.5 percentage points below peer rates in the US, Britain, Canada and New Zealand.

Even the RBA’s outgoing assistant governor Luci Ellis, who is now chief economist at Westpac, called a “hike” only days after she predicted that inflation would not be robust enough to warrant one.

In sum, we know the RBA should hike in November. Whether it actually does or not appears to now be a question of its ability to resist political interference.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Is It Déjà Vu All Over Again?

With bond yields surging back to levels not seen since 2016 in recent months, there has been no shortage of comparisons between the current state of markets and that on the eve of the global financial crisis. In fact, the parallels drawn between conditions now and in 2007 appear pretty strong when you take a look.

Simultaneous falls in bonds and equities could hit parity trades. The sort of asset mismatches we saw in the collapse of Silicon Valley Bank could return. With mortgage rates in the US at 8 per cent, both sides (sell and buy) of the real estate market could completely freeze.

Pockets of the economy that have less transparency could be in trouble, such as private equity and particularly private credit provided by hedge funds, which has become increasingly important given the banks have backed away from commercial lending.

As in the GFC, “trust between banks could suddenly evaporate”, while a move up in the US dollar could sap global liquidity at the wrong time.

Perhaps ASX investors should think about the bigger picture. Despite all that’s happened in the past 15 years – the GFC and recovery, the pandemic and recovery – they don’t have a lot to show for it.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Is It Déjà Vu All Over Again?
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Is It Déjà Vu All Over Again?

With bond yields surging back to levels not seen since 2016 in recent months, there has been no shortage of comparisons between the current state of markets and that on the eve of the global financial crisis. In fact, the parallels drawn between conditions now and in 2007 appear pretty strong when you take a look.

Simultaneous falls in bonds and equities could hit parity trades. The sort of asset mismatches we saw in the collapse of Silicon Valley Bank could return. With mortgage rates in the US at 8 per cent, both sides (sell and buy) of the real estate market could completely freeze.

Pockets of the economy that have less transparency could be in trouble, such as private equity and particularly private credit provided by hedge funds, which has become increasingly important given the banks have backed away from commercial lending.

As in the GFC, “trust between banks could suddenly evaporate”, while a move up in the US dollar could sap global liquidity at the wrong time.

Perhaps ASX investors should think about the bigger picture. Despite all that’s happened in the past 15 years – the GFC and recovery, the pandemic and recovery – they don’t have a lot to show for it.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The RBA’s Third Phase Of Tightening, And What Happens Next…

The Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets), Christopher Kent, gave an Address to Bloomberg on Wednesday where he expressed why the RBA is reluctant to lift the official cash rate further.

https://www.rba.gov.au/speeches/2023/sp-ag-2023-10-11.html

The RBA is in its “third phase” of monetary policy tightening as it assesses the impact of interest-rate rises to date, he said. The current stage is “an opportunity to see how the economy and how the data is evolving,’’ he said, reiterating that further rate increases may still be needed.

Much of the presentation concerned the lags as monetary policy takes effect. Basically, the RBA expects further impacts on the economy as the lagged effects of the 4.0% of monetary tightening delivered over the past 18 months flows through.

A ‘built in’ monetary tightening in Australia is one reason why the RBA is reluctant to lift the official cash rate further. Australia’s monetary system will tighten on its own as more pandemic era fixed rate mortgages reset from rates of around 2% to variable rates of more than 6%.

But that means those with big mortgages are being worst hit, while others are still enjoying their savings buffers and will continue to spend.

And the question will be, whether the current settings will crush inflation, or whether more rate hikes are needed. As I discussed the other day, there are significant pressures on the RBA to lift further, and some economists are expecting another one or two hikes into 2024.

Either way, there is little rate relief on the horizon for the next year plus.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
The RBA’s Third Phase Of Tightening, And What Happens Next...
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