Growth accelerates as the RBA is caught flat footed

Thu, 03 Apr 2014  |  

The run of data in the few days since Tuesday's meeting of the RBA Board has continued the trend of strength, confirming a substantial lift in the non-mining investment parts of the economy.

The RBA appears to be too gloomy with its views on growth and sanguine on inflation as it happily leaves interest rates at record lows, inflating house prices along the way and allowing the rest of the economy to pick up momentum at an increasingly worrying pace.

In terms of the specifics, retail sales rose a further 0.2 per cent in February and this is after a stonking 1.2 per cent rise in January and 0.7per cent increases in both November and December. Since September 2013, the annualised growth rate of retail spending is an over-heated 8.5 per cent. In trend terms, retail sales are also strong and barring some massive shock, it looks like real retail spending rose by massive 1.25 per cent in the March quarter. This is a terrific kick-start to the GDP growth.

The export performance remains super-charged with annual growth now at 17.6 per cent and the balance on international trade moving squarely into surplus. All of that investment in mining is clearly yield extra output, the bulk of which is being exported and adding to bottom line GDP.

What's more, the number of building approvals for dwellings remains strong, with the 5.0 per cent dip in February only partly unwinding a stellar 6.9 per cent rise in January. Put another way, the month to month noise is merely a distraction from the fact that dwelling approvals have been rising on a trend basis for more than two years.

Even job vacancies are turning, with the ABS measure up a decent 2.3 per cent in February. This marks the start in the uptrend in demand for labour. The ABS series is now matching the ANZ job vacancies series which is also showing signs of improvement.

In all, the economy is transitioning away from the mining investment phase and more towards domestic activity and exports.

Indeed, when the March quarter national accounts are released, GDP growth will be back at a trend pace of 3 per cent. With that growth rate all but baked in the cake, get set for the unemployment rate to start to fall soon and for the inflation outlook to become a little more problematic.


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Change of view on interest rates

Fri, 24 May 2019

Having been the only economist to correctly anticipate an interest rate cut from the RBA when close to 50bps of interest rate hikes were priced in to the market last year (See Bloomberg 17 August 2018), I have agonised over the exact months the cuts would be delivered and then how many rate cuts would be needed to reflate the economy.

Recently, I was of the view that the RBA would need to cut 100bps from now, to a level of 0.5%, but I did so with relatively low confidence. This is why I recommended all clients to close their long interest rate positions on 17 April 2019 (when the implied yields were 1.10% for the mid 2020 OIS; 1.35% on 3 year yields and the Aussie dollar was just over 0.7000 at the time).

Like in most good trades that were massively in the money, I left a little money on the table while I reassessed the outlook.

Since calling for interest rate cuts from the RBA, a lot of water has passed under the bridge, especially in the last few weeks.

Events mean I am changing my view on interest rates and have been placing / will be looking to implement new trades.

Watch out Australia: There's a flood of dismal economic news on the horizon

Wed, 01 May 2019

This article first appeared on the Yahoo Finance website at this link:


Watch out Australia: There's a flood of dismal economic news on the horizon

The Australian economy is in trouble and Scott Morrison and the Liberal Party government need to come clean and acknowledge this and outline a framework how this period of economic funk is to be addressed if they win the 18 May election.

The Liberal Party is campaigning in the election on a “strong economy” and being “good economic managers”, bold claims that fly in the face of the latest score card for the economy.

That scorecard shows a flood of what is, frankly, disappointing or even dismal economic news. Australia is going through a very rare recession in per capita GDP terms and last week saw data showing zero inflation in the March quarter. Contribution to these indictors of economic funk is the fact that well over half a trillion dollars of householder wealth has been destroyed as house prices have tumbled.

Add to that the fact reported by the Australian Office of Financial management last week that gross government debt is $543 billion, almost double the level that the Coalition government inherited in September 2013, and the scorecard is looking very ratty indeed.

As the ad man used to say, “but wait, there’s more”.