rss

Full text of the statement from RBA Governor Lowe

Comments from Lowe

Statement by Philip Lowe, Governor: Monetary Policy Decision, Dec 3, 2019:
At its meeting today, the Board decided to leave the cash rate unchanged at 0.75 per cent.
The outlook for the global economy remains reasonable. While the risks are still tilted to the
downside, some of these risks have lessened recently. The US-China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty. At the same time, in most advanced economies unemployment rates are low and wages growth has picked up, although inflation remains low. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system.
Interest rates are very low around the world and a number of central banks have eased monetary policy over recent months in response to the downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back. Financial market sentiment has continued to improve and long-term government bond yields are around record lows in many countries, including Australia. Borrowing rates for both businesses and households are at historically low levels. The Australian dollar is at the lower end of its range over recent times.
After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point. The cen ral scenario is for growth to pick up gradually to around 3 per cent in 2021. The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth. The main domestic uncertainty continues to be the outlook for consumption, with the
sustained period of only modest increases in household disposable income continuing to weigh on consumer spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle (more…)

RBA holds key rate at 0.75%, as expected

RBA holds cash target rate unchanged

  • The market had priced in an 8% chance of a cut today
  • The next meeting is Feb 4
Highlights of Lowe’s statement:
  • Outlook for global economy is reasonable but risks tilted to the downside
  • Rates to remain low for extended period
  • Sees inflation close to 2% in 2020 and 2021
  • Prepared to ease monetary policy further if needed
  • Rate cuts supporting employment and income growth
  • Pick up in wages would be welcome development
  • Weak household income growth is weighing on spending
  • Risks to global economy have lessened recently
  • Given long lags in monetary policy, decided to hold steady
  • Repeats that Australian economy appears to have reached a gentle turning point
The initial reaction in the Australian dollar has been higher with AUD/USD up to 0.6832 from 0.6820.
The final paragraph of the statement is telling:
Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market. The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
Versus this in the Nov statement:
The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range. Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
The comment about the lag in policy is a hint that they’re done cutting.

Eurozone November final manufacturing PMI 46.9 vs 46.6 prelim

Latest data released by Markit – 2 December 2019

The preliminary report can be found here. A more positive revision here as preempted by the French and German readings earlier but overall factory conditions are still more subdued despite the bit-part recovery.

It just reaffirms that the manufacturing sector is contracting at a slower pace but challenges still remain as we look towards next year.

OPEC+ said to be discussing deepening current oil output cuts at least until June

Reuters reports, citing two unnamed sources on the matter

Says that OPEC+ is discussing to deepen the current set of output cuts by at least 0.4 mil bpd until June next year as Saudi Arabia is keen to surprise the market to the upside before the Saudi Aramco IPO.

China’s PMI data to jolt markets into action for December?

Via Bloomberg, shake the PMI’s wake the dragon?

Chinese stocks have been subdued lately. In part this has been fatigue as the Us-China trade negotiations oscillate every few days. It’s on, it might be off, it’s on, etc etc. Until Friday last week the Shanghai Composite only moved around 1% up or down for three week.
The Yuan has also seen a fall in volatility as volumes fell last month and has now hit the lowest level since mid-October on Thursday last week.

Via Bloomberg, shake the PMI's wake the dragon?

Chinese PMI’s to re-energise markets
According to Bloomberg’s Market Live blog the manufacturing PMI’s had been expected to signal contraction this month and services PMI were expected to show a small pick up for October. Note that the Caixin manufacturing data out is the private surveys of smaller to medium Chinese businesses. The recent run of services PMI data for the Caixin data out on Wednesday has shown a steady decline since May this year. So, a beat there and we will have a full dose of good news from the latest Chinese PMI data.

PMI , CaixinThe Caixin manufacturing data has shown a pick up in the last couple of months. October saw a beat of 51.7 vs 51.0 expected with both output and new orders expanding at steeper rates. The official manufacturing PMI release showed an expansion for the first time in 8 months at 51.8 vs 51.5. The services data showed a beat too at 54.5 vs 53.1 showing the highest reading since March.  Any surprises to the downside with the PMI’s would have raised alarm bells. This surprise to the upside will alleviate nerves. The immediate response has been a buoyant Asian equity market. The Nikkei is up +1.01%. the Hang Seng +0.42% and the Shanghai Comp. +0.13%. This is a positive risk development, but may make China slightly more robust in US-China trade negotiations with the US in a similar way that stronger US data hardened President Trump’s hand.

China suspends review of US vessel requests to visit HK

China takes action in response to the HK bill passed by the US

The Chinese foreign ministry is said to have suspended the review of the request of American maritime vessels as well as the review of American military aircraft visiting Hong Kong, according to Reuters.

Adding that Beijing has also sanctions US NGO human rights watch for supporting the “extremist, violent activities” in Hong Kong.
The headlines here are barely audible by markets at the moment as the more positive risk mood continues to reverberate into the European morning. That said, in terms of retaliatory action by China, this so far can be categorised on the mild side of things.

Rare-earth metals fall to 7-month lows as China resumes Myanmar supply

The prices of rare-earth metals have tumbled from their June highs after China, a key refiner, resumed the import of ores from Myanmar in September but supply concerns continue to plague the market.

In mid-November, neodymium, an ingredient of permanent magnets used in electric vehicle motors, was traded at around $54 per kilogram, while dysprosium, which is added to improve permanent magnets’ heat resistance, was traded at around $230 per kilogram. Both values were 20% lower than their recent highs in June, and at their lowest points since April.

China’s Yunnan Province, which borders Myanmar, suspended imports of all resources, including rare-earth ores, from its neighbor in November 2018. It was thought that this move was a crackdown on the smuggling of rare-earth metals into China from mines in neighboring Kachin State and other places in Myanmar, where many Chinese were working.

Rare-earth ores mined in Myanmar contain high concentrations of dysprosium, which is mined in only limited areas in China. Myanmar had become an attractive source for Chinese refiners as its rare metals are traded at relatively low prices due to cheap labor and loose environmental protection.

The suspension of imports from Myanmar has pushed up dysprosium prices since the start of the year, paving the way for soaring rare-earth metal prices in May and June over speculation that China could announce a ban on imports. Rare-earth metal prices are particularly susceptible to movements in China’s market, given its small size and the country’s dominance.

But the suspension was abruptly lifted in late September and even now, traders have few clues as to the reasons behind China’s move. “I have no idea what is going on,” said Yutaka Kawasaki, general manager of Samwood, a Japanese trading house that deals in rare earth. (more…)