Cutzerates

Markets now pricing a rate cut after Lowe's speech today.

There'll be nothing doing soon.

But give it another quarter of poor data - quarterly GDP looks set to be flat, the pace of headline inflation slowing, and the CapEx outlook will probably be modest - and a cut could feasibly be on the table by May/June. 

What is passive income?

It's not impossible to generate passive income from residential property...but even when you do it's far from the most efficient vehicle for doing so. 

See here for more. 

Capitulation beginneth

Cost of living eases

The annual cost of living growth for employee households has fallen from 2.3 per cent in June 2018 to 1.9 per cent in December 2018.

The main contributor to the modest price increases has been the huge and ongoing growth in excise on tobacco.

So it's basically excellent news...as long as you aren't a smoker. 

Fuel prices are now falling, and therefore real incomes are rising.

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A far more dovish speech from the RBA Governor Lowe today:

"Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down. 

Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. 

Today, the probabilities appear to be more evenly balanced..."

Which sounds much more like where things are at.

Financial markets are now pricing in a rate cut by the middle of next year.

Housing transactions dry up too; car sales tanking

Stock, stock everywhere...

Property transactions dried up in the latter part of 2018, and stock listings are now starting to pile up as existing listings aren't absorbed. 

In Melbourne listings are up 42.3 per cent from a year earlier.

New car sales also tanked, including business buyer activity.

You never really know if the economy is in recession until after it's already happening, but recessionary conditions increasingly seem to be creeping in. 

RBA Governor Lowe will deliver a speech today on the year ahead in Sydney, which will be an interesting listen or read.

Lowe will almost certainly stress low unemployment rates, which is good, but growth in hours worked has been far more subdued, and what's of more concern are the leading indicators. 

Laughing all the way to the banks

Banks go ape

As mentioned yesterday the moment I skimmed the final Royal Commission report this was set to be quite some celebratory day for the major bank stocks.

And so it was...

On a more considered inspection the Reserve Bank did acknowledge some downside risks for growth in the economy, growing uncertainty around household spending, and the potentially negative impact of falling house prices in some cities. 

Inflation is supposed to hit 2 per cent this year (although fuel prices will result in an initial decline in headline inflation), rising to 2¼ per cent by 2020, but increasingly that feels a little more like hope than expectation. 

But, today mainly belonged to the bankers.

AMP was up almost 10 per cent at the close, and Westpac closed up by more than 7 per cent. 

On the other hand Mortgage Choice closed down at just 78 cents, a far cry from above $3.00 in the not-too-distant past.

And Australia's largest mortgage aggregator AFG saw all but a third of its market cap wiped away during today's trade, with the stock price having fallen by more than half since last February. 

No advice here, but in my opinion that will prove to be a market overreaction in time as a more commercially realistic approach is adopted with regards to mortgage broking industry reform.

Imports dive as well

Imports crunched too

I've lost count of the number of poor or very poor releases relating to the economy in December - about half a dozen or so - and although it was barely reported today you can now add the trade figures to that list.

Nothing too much wrong with exports, with LNG going almost vertical, and further strength in coal and iron ore. 

Exports did drop a couple of per cent in the month due to a billion-dollar drop in gold exports in original terms, but that drop won't be sustained in 2019. 

And indeed, over the year, export values in Aussie dollar terms have never been higher, a positive development for nominal GDP, company profits, and ultimately incomes. 

On the other hand seasonally adjusted imports nosedived by some $2 billion or SIX per cent in December, resulting in an mammoth $3.7 billion trade surplus, the second greatest ever monthly trade surplus in Australia. 

Even on a trend basis the surplus is heading up, up, and away, but a crash in imports hardly something to be celebrated. 

Big merchandise trade surpluses being are notched in Queensland, thanks to LNG, and huge surpluses are consistently recorded in Western Australia. 

It's becoming increasingly apparent that the taps have been switched off and there is precious little business, housing, or personal credit greasing the wheels of the economy right now. 

Unfortunately the tourism boom, which was one of the few genuine shining lights on the economy, also seems to have lost its way as Chinese enthusiasm wanes a little. 

At least it's Lunar Year this month, but there's not too much else to cheer here.

Retail shakedown

Not so merry Xmas

And there's the hat-trick, with retail turnover falling -0.4 per cent in December 2018, seasonally adjusted. 

A real stinker, as some surveys had expected. 

The previous month did admittedly show a bit of spike, related to Black Friday sales. 

Annual growth in retail turnover has slowed to 2.75 per cent.

Significant monthly drops were recorded in household goods, clothing and footwear, and department stores, partly because of Black Friday promotions in the preceding months. 

And only Western Australia had a merry retailing Xmas, with a tiny monthly gain.

Negative everywhere else, especially so in Canberra.

The Aussie economy gently sleepwalking into a recession.

The Reserve Bank will have some task to smear lipstick on this week's pig of a data suite, but let's see how they go this afternoon. 

Recession already?

Services crunched

A 'disturbing' crash in services activity reports AiG, as the services gauge collapses to a very much contractionary 44.3.

Awful release, to be blunt, reported in more detail by the Scutt missile at Business Insider Australia here.

Source: Business Insider Australia

Retail trade figures are due out at 1130 AEDT, and then the Reserve Bank meets for its Monetary Policy Decision over at Martin Place this afternoon. 

Presumably this warrants a slight change of rhetoric, given that inflation appears to be decelerating to well below the target range too. 

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Big surge at the open for all major banks, as noted yesterday, with the Royal Commission seen by markets to be a real damp squib for the majors. 

Westpac is trading up by more than 6.7 per cent at the time of writing on short covering, ANZ is trading up by more than 5 per cent, and CBA by more than 4 per cent.

AMP is trading up by 10 per cent!

Expecting prices to settle a little during trade.