Musings: Payrolls, RBA, GDP and Apartments

• Fed Chair Yellen’s Taylor Rule from her Jackson Hole speech suggests the Fed Funds rate should already be around 1.33%. So while the August payrolls result wasn’t strong enough to guarantee a move on 22 September, the market continues to ascribe nearly a 40% chance of a rate hike this month. A US rate increase this year and further moves next year are important to NAB’s forecast that the $A will gradually decline.

• In Australia this week, the RBA Board Meeting and Q2 GDP are the focus. Governor Stevens last meeting should be a non-event: with the Board having eased twice in the past four months, the Bank will now be in monitoring mode for some time. Indeed, NAB does not expect any further rate changes this year, though we look for two further reductions in 2017 on the basis of an expected weaker economy in 2018 as housing construction eases. Q2 GDP should be around the 0.3/0.4% q/q mark (slight upside risk), though this follows the strong 1.1% q/q increase in Q1.

• We also focus on the trend in apartment approvals and vacancy rates, plus cover some anecdotes of recent settlement developments. This is likely to be a key issue to follow over the next 12-24 months as the near 220,000 dwellings currently under construction complete. There are already some media reports of settlement failures – reportedly mainly delays – as purchasers find it harder to complete given tighter lending standards imposed on investors and foreigners. However, with price gains on off-the plan purchases made some two years ago, there remains a strong incentive for buyers to settle – and protection for developers for non-settlements. The test remains the raft of settlements to come over the next one to two years. So far, it doesn’t look like prospective oversupply of apartments in some areas will coincide with either higher interest rates or higher unemployment, which would be a more concerning development.

For full analysis, download report:

•  Australian Markets Weekly: 5 Septemember 2016 (PDF, 398kb)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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