Don’t bet on a rate cut from tomorrow’s first board meeting of the Reserve Bank of Australia for 2013. The market boom and easing of tensions in Europe and the United States have taken the much-watched external factors out of the RBA’s thinking, while the weak inflation data for the December quarter shows us the domestic economy is running, as expected, a bit under trend.
But house prices are finally rising, especially in the Sydney market, while new home sales rose to a two-year high. Bank lending remained weak, especially for housing, but the 3.6% rise in private credit in 2012 was the highest for four years.
China is doing better than it was in early December, when the RBA last met, while Europe hasn’t collapsed (despite another 56 billion euros in bank write-offs in Spain, France and Holland last week). And the RBA’s Commodity Price Index for January shows a definite rebound from the lows of late last year. In Australian dollar terms, the index rose 2% in January and is now at a six month high. It is up 5% in two months.
The AMP’s chief economist, Dr Shane Oliver said at the weekend ”the case for further rate cuts remains strong and I continue to see more cuts in the months ahead”. But he added that there were a number of improving factors which “are likely to encourage the RBA to wait a bit longer to see the impact of past rate cuts. So on balance we see rates remaining on hold for now”.
The December’s building approvals data will be released today, house prices and trade data will arrive tomorrow and December’s retail trade information will appear on Wednesday. Thursday sees the first significant data for 2013 with the January employment data released.
Other economies are showing the same sort of dichotomy; weak to OK demand, sluggish employment growth (or none at all), reasonable consumer demand for items such as cars and prospects of more of the same. But no real crisis, unless Italy goes bad after the election or we are hit by an unexpected problem in the EU or Middle East. Markets however are ignoring that possibility and pushing indexes past 2007 highs.
America’s S&P had its biggest January rise since 1997, and hit a fresh five-year high of 1513 at the close on Saturday morning, our time. London had its best January since 1989. Australia had the second best January since 1994 and on Friday jumped 1% to make the gain for the year so far 5.9%.
US employment continues to rise: another 150,000 jobs last month, and more importantly, revisions found another 127,000 new jobs in November and December. More than 600,000 new jobs were created in the fourth quarter, when GDP supposedly contracted 0.1%. The sharp rise in job numbers offset a rise in the jobless rate to 7.9%. US 10-year bond rates breached 2% on Friday, but eased to end around 1.96%, ending fears about a rapid surge in rates.
Financial Times senior columnist John Authers captured the current market nicely in a column at the weekend which described the market boom as “Goldilocks On Ice”. Authers spots a possible trend that we should be aware of — the S& P 500 (the pro investor’s key index) is back over 1500 in New York, while in New Orleans, Super Bowl XLV11 is being played. In fact the S&P 500 has topped 1500 points only in two other years, in 2007 and in 2000.
FT points out that they were not signal points in a continuing rally, but marked the start of a major turning. For example, in 2000, when the St Louis Rams beat the Tennessee Titans 23-16, the next three years saw the S&P 500 drop by 39%, the total of the score in that game. And in 2007, the Indianapolis Colts beat the Chicago Bears 29-17, and the S&P 500 had collapsed by 46% by the end of 2008.
So it might pay to look at the score in today’s game between the San Francisco 49ers and the Baltimore Ravens.
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