Below trend growth to continue
Friday was a case of another day, another set of disappointing US economic release. The latest was a trifecta encompassing industrial production and the Empire Manufacturing survey.
Friday was a case of another day, another set of disappointing US economic release. The latest was a trifecta encompassing industrial production (-0.3% vs. 0.0% expected, Michigan consumer sentiment (81.5 down from 88.8) and the Empire Manufacturing survey (+3.09 up from -1.19 but below the 5.0 consensus). The positive, if there was one, was the recorded rise in inflation expectations.
The data kept the US dollar soft, DXY was -0.34% to 93.14 thanks largely to the 0.36% rise in EUR/USD to 1.1451, its best level early February and despite a renewed public commitment by ECB president Draghi – speaking at the IMF – on Friday – to complete the EUR1.1tn QE programme, but while also warnings central banks against ‘blind risk taking’.
AUD and NZD were exceptions to the softer dollar rule, AUD -0.58% to 0.8034 and NZD -0.31% to 0.7474. USD/JPY actually rose fractionally (+0.06%) on a Bloomberg story saying that the BoJ is said to view a cut in the Reserve Rate (i.e. the interest on excess reserves or IOER) as a potential future option, something BoJ governor Kuroda appeared to rule it out in comments earlier in the week.
In bonds, we witnessed a bull flattening of the curve, with 2s off just 0.8bps to 0.5365% and 10s -8.8bps to 2.1424%. US equities weren’t as enamoured of the data as they were the previous Friday’s payrolls report, the S&P500 nevertheless closed +0.08% at 2122.73 (so +0.3% on the week)
Locally, the housing market will be a particularly hot topic of conversation at the start of the week, with the head of ASIC telling the AFR that house prices across Sydney and Melbourne have all the hallmarks of a bubble and warned investors ‘against borrowing to invest in the heated sector’. His warnings come as CoreLogic RP Data’s preliminary Australian weekend housing market auction/price stats. show some very tentative sign of a slight cooling in the Sydney market, with its Saturday auction clearance rate down to (a still very high) 85.5% from 88.7% and prices flat on the week keeping the YTD change at 6.9%. Melbourne’s clearance rate was 74.3% down from 77.5% with prices -0.4% on the week do YTD gains easing to 3.8% from 4.2%.
The ASIC warning also comes as the NZ Government announces it will impose capital gains tax on residential investment properties sold within two years. A seller’s “main home” is exempt. This markedly tightens an existing law, where tax was paid if Inland Revenue believed there was an intention to make a capital gain on a property. In addition, the Government will from now require that any seller, resident or non-resident, declares his/her Inland Revenue number. This is expected to assist Inland Revenue in applying the tax to foreign investors. The government is also investigating an additional withholding tax on non-resident property investors.
NZD has opened the week lower with the announcement seen as further lowering the hurdle to near-term RBNZ rate cuts. Our BNZ economists’ view is that the changes at the margin will dent some of the current foreign speculator behaviour but won’t impact the overall supply/demand dynamic. Rather, they argue, it’s more a case of trying to ensure that tax cheats (and potential money launderers) are brought to heal. Markets have nevertheless employed their preferred technique of ‘shoot first, ask questions later’.
It’s not a big week domestically, with RBA Minutes on Tuesday already somewhat pre-empted by the 8 May Statement on Monetary Policy and its attendant slight downgrades to the RBA’s growth and inflation forecasts. While these mean an implicit easing bias should still exist in Martin Place, confirmation – or otherwise – of this in the Minutes will be noteworthy. Data wise, they’ll be keener than usual interest in both the weekly (Tuesday) and monthly (Wednesday) consumer confidence surveys, the weekly one in particular for its ‘pure’ read on households’ take on last Tuesday’s Budget. Judging from the Fairfax/Ipsos poll published in this morning’s AFR, the verdict is positive, providing a significant boost to the Coalition and sharp contrast to last year’s budget. The poll has the Coalition and Labor tied at 50% on a two-party preferred basis, vs. 54/46 Labor/Coalition a month ago.
Today, RBA Deputy Governor Phil Lowe speaks at the Corporate Finance Forum in Sydney, starting at 09:30 AEST.
Internationally, the minutes from the 28/29 April FOMC meeting will be scrutinised closely, coming after the soft March employment report but before the better if not spectacular, April one. Data that will probably garner the most attention will be Friday’s CPI (and where the core rate ticked up to 1.8% in March). A bunch of housing related numbers and the Philly Fed survey (Friday) will also be relevant for markets.
The only thing of note today is the US NAHB housing index.
On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years -8.77bp to 2.14%. On commodity markets, Brent crude oil +0.16% to $66.81, gold+0.0% to $1,225, iron ore -1.6% to $61.31. AUD is at 0.8044 and the range since Friday’s local close has been 0.7997 to 0.8062. Indicative range today 0.8015 -0.8075 (For more market prices, please see p.2 of the pdf).
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