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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"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"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'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Monday, 30 September 2013

Interest rates on hold say futures markets

We don't need to waste too much time and too many words this month as markets have made up their mind retaining only a slender chance of an interest rate cut, with the odds stacked heavily in favour of the RBA on hold at 2.30pm.

Indeed, we may potentially at last be close to the end of the easing cycle.



Source: ASX

Rates are thought likely to be kept on hold today for the very simple reason that not enough has changed since last month to warrant a move.

In terms of global growth, China's feared "hard landing" has not eventuated to date and growth looks set to hit around a very healthy 7.5%. 

The Eurozone is recovering in several of its stronger economies, although some countries remain in a right royal mess. And the US may steadily be making progress, although of course the threat of a pending government shutdown has the potential to throw a rather sizeable spanner in the works.

Commodity prices: the RBA's index has fallen since its peak, but iron ore has been holding up at above US$130/tonne.

Graph: RBA Index of Commodity Prices

Domestic demand remains fairly weak. Not much doing in terms of consumption (retail sales figures have been mostly crap, although there is a feeling that the election result may have helped prospects a little going forward - the latest data is due to be released this morning) and the outlook for investment not great. 

The labour market is still soft and unemployment is threatening to tick up further into 2014 into the more worrying 6-7% range.

Graph: Unemployment Rate

Source: ABS

Financial markets - not enough has changed from what the RBA said in September about financial markets to warrant a change in monetary policy stance.

Inflation is presently contained at 2.4% - the RBA will have noted the TD monthly inflation gauge yesterday, but the next ABS inflation data isn't due until 23 October. There is some talk of inflation moving up towards problem levels, but this seems a little unlikely while the labour market remains so soft.

The Aussie dollar is still stronger than would ideally be the case, but at least it is down from where is was to around 93 cents against the US dollar. 

Australian Dollar Against US Dollar, Euro and Yen graph

As for interest rate sensitive sectors, property market commentators are continually guilty of placing way too much emphasis on the housing market (and particularly movements in median house prices) and its influence on monetary policy, but dwelling values may indeed have a significant role to play in the coming months. 

Further cuts could be seen as unlikely if dwelling prices keep rising in Sydney and Melbourne at the pace they seem to have been doing of late. Still more growth in dwelling construction is needed, though.


Source: RP Data

Summary

Interest rates to stay on hold today at 2.50% to allow the impact of the recently delivered cuts in May (to 2.75%) and August 2013 (to just 2.50%) to work their way through. 

The next labour force data from the ABS will be out next Thursday, and the Reserve will be hoping for an improving outlook, but is has to be said that other indicators do not look strong. Apocryphal evidence suggests to me that the unemployment will probably have some way higher to run - there appear to increasing numbers in the mining industry at the end of their contracts as the mining construction boom falls away.