Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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Wednesday, 21 August 2013

Rates on hold...for a few months?

Just got around to reading the latest missive from one of my favourite blogs, Ricardian Ambivalence here.

The blog explains why futures markets have all but discounted an interest rate cut in September (only a 7% chance is presently priced in) and don't expect to see any cuts for a few months, implying perhaps on balance not even until early next year.

"...with growth expected to remain below trend for longer and inflation to remain within the target even with the effects of a lower exchange rate, members concluded that a lower level of the cash rate would better contribute to achieving sustainable growth in demand consistent with the inflation target. 

Regarding the communication of this decision, members agreed that the Bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further. The Board would continue to examine the data over the months ahead to judge whether monetary policy was appropriately configured."

As RA points out, while the next move for interest rates could be down, there is no urgent rush for the trigger to be pulled again.

Firstly, because lower interest rates are having some effect on the areas of the economy which tend to be impacted, and secondly, because the drop off in mining capital investment - to date at least - has not been sharp.

The last round of ABS figures showed that mining capex may yet fall in a more measured fashion.

As a recap, these are the actual and expected figures for total capital expenditure:

Financial year actual and expected expenditure - Total Capital Expenditure

Source: ABS

And this is part of the same data set for mining only capital expenditure, actual and expected:

Financial year actual and expected expenditure - Mining Capital Expenditure

Source: ABS

The estimates in the March quarter implied that the RBA still has some time on its hands before another cut will be needed.

The data for the next quarter will be released on August 29, so it will be interesting to note whether the June quarter figures hit expectations or whether we are on a steeper downward trajectory than feared.

However, as noted by RA, if unemployment does rise back to 6%, then that would likely be a trigger for another cut.

Best guess therefore: interest rates on hold for a couple/a few months, until a slowing of capital expenditure or an uptick in the unemployment rate sees another cut in the official cash rate to a new cyclical low of 2.25%.