Focus on consumer balance sheet trends

• For this week’s weekly we take a closer look at Australian household balance sheets. We find that household deposits have grown strongly, with deposits now equivalent to 43% of household liabilities. A growing deposit share has implications for the cash flow transmission mechanism – likely reducing its effectiveness slightly. Consumer surveys suggest a growing deposit share should continue for some time. Strong deposit growth also means net debt (liabilities less deposits) of the household sector have been unchanged as a share of income since 2009, reducing concern about a renewed upward trend in gross debt ratios.
• The new RBA Governor and the Treasurer have signed an updated Statement on the Conduct of Monetary Policy. The formulation of the inflation target remains the same at 2-3% on average, but the length of time for the target has been tweaked from “over the cycle” to “over time”. Financial stability considerations have also been explicitly brought into the monetary policy objectives paragraph along with an inference to inflation expectations. Overall it is suggestive of little change in direction; perhaps a little more flexibility at the margin.
• The past week in markets has been a volatile one led by an uptick in government bond yields (Chart 1). There appears to be a growing consensus that central bankers are becoming less enamoured with further monetary stimulus, negative interest rates and flat yield curves which has seen long-term yields rise with Japanese and German yields now re-approaching positive rates! This week will be a key test of this thesis with the Bank of Japan meeting Wednesday. The US Fed also meets Wednesday (decision Thursday 4.00am AEST), and while it is expected the Fed will keep rates unchanged, there could be 2-3 dissenters to an unchanged decision that would likely see markets prices further toward rate hike at the December meeting.
• The other major event in markets this week was a sharp fall in oil prices after the International Energy Agency stated “global oil demand growth is slowing at a faster pace”, while OPEC oil supply remains at a “near-record” with Iranian oil production at post-sanctions highs.
• For domestic markets, the main focus will be on the RBA Minutes on Tuesday and the new RBA Governor’s first Parliamentary Testimony on Thursday; the RBA’s Alex Heath also speaks Wednesday. Datawise it is a very quiet week with ABS House Prices Tuesday and the latest Australian Population estimates for March 2016 out Thursday.

For full analysis, download report:

•  Australian Markets Weekly: 19 September2016 (PDF, 435kb)

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