Inflation easing
The US Federal Reserve lifted the Funds Rate by 25 basis points overnight - very likely the final interest rate hike for this cycle - sending the bank indices into a bit of a tizz.
Powell's speech revealed a dovish tilt, however, and interestingly financial markets are pricing for 3 or 4 interest rate cuts ahead by January next year.
Bond yields also dropped back in Australia on the dovish rhetoric.
The most US recent data released yesterday suggests that inflation pressures are still easing overall.
The dynamic in Australia is somewhat different.
In contrast to the US, wage price growth Down Under is only running at a very modest 3.3 per cent, and now appears to have peaked as immigration ramps back up.
And with most borrowers on variable mortgage rates - or short-term fixed rates - spending is already slowing sharply.
ANZ observed services spending in March as being down by more than 12 per cent from a year earlier, with softness in evidence across the board.
A critical emerging issue in Australia is the enormous build-up of pressure in rental markets, especially in Sydney, with rapid immigration returning and a tight regulatory squeeze being maintained on investor borrowers.
Mortgage rates are generally higher for investors, and stress-testing is being carried out at extremely tight level - with no apparent justification, especially now given record low rental vacancies and the skyrocketing trajectory of rents.
Source: SQM Research
It's hard to see how this can be sustained, so something has to give.
