Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Monday, 23 February 2015

Rate cut bites

Auction clearances rip higher

Lest there was any doubt about what February's interest rate cut would do to Sydney's housing market we got our answer on Saturday.

Nationally auction preliminary clearance rates screamed ~10 percent higher to 78 percent at the weekend according to Corelogic-RP Data's index.

RP Data also recorded an extraordinary 88 percent preliminary auction clearance rate for Sydney.

Domain Group recorded an 85 percent clearance rate for Sydney from a smaller sample of results, one of its highest ever readings.

Tellingly, the median auction price for Saturday was a thumping result, coming in at $1,100,000 on the nose.

Rate decision in the balance

This dynamic will no doubt give the Reserve Bank pause for thought before it cuts interest rates again, although housing markets such as Adelaide, Perth, Canberra and Darwin are relatively soft, while Hobart could use a boost after a dismal decade.

Futures markets appear split on the March decision, with an important week of data ahead.

At the close on Friday, 30 Day Interbank Cash Rate Futures contracts for March had been trading at 97.87, indicating slightly above a 50 percent expectation of an interest rate decrease to 2 percent at the next RBA Board meeting.

However, markets continue to price in two full rate cuts by the end of the calendar year.

The week ahead

Some key data releases this week, with the Wage Price Index expected to remain at around survey lows with a 0.6 percent reading forecast for Q4 (forecast range from 0.5 to 0,8 percent).

Estimate 5 for 2014/15 is expected to remain broadly similar to the prior quarter's reading of $154 billion, representing a 7.5 percent decrease in 2013/14.

The Q3 figures showed that mining is in hole but capex intentions were surprisingly strong.

Estimate 1 for 2015/16 capex could be anything in the current uncertain environment - historically first estimates have been unreliable - but it is widely expected that mining capital expenditure intentions will fall dramatically.

Also this week, the Construction Work Done figures for Q4 are expected to continue to slide in Q4 by another 1 to 3 percent.

The Q3 figures highlighted two systemic risks in particular as I looked at here.

Finally, private credit in January is expected to fall back to 0.4 percent with the latest Lending Finance data suggesting that business credit is now likely to "consolidate" (i.e. slow). 

The December credit figures as I analysed here showed credit expanding by 5.9 percent which was the strongest rate of credit growth seen in 6 years, albeit disproportionately driven by housing credit.

In December, housing credit expanded by 0.6 percent to be 7.1 percent higher over the year, with a similar result expected for January.