Daily Market Reports | Apr 05 2017
By Greg Peel
The Dow closed up 39 points or 0.2% while the S&P rose less than 0.1% to 2360 and the Nasdaq was similarly higher.
To cut or not to cut
From the RBA governor’s policy statement released yesterday:
“Recent data are consistent with ongoing moderate growth… some indicators of conditions in the labour market have softened recently… Wage growth remains slow… Inflation remains quite low.”
Looks like we might be in for another rate cut. Forex traders are apparently of that view, given the Aussie plunged on the release of the statement and is -0.6% lower this morning despite a flat US dollar.
But:
“Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income.”
This is the problem the RBA is facing, and why a rate cut could be dangerous. Dr Lowe also spoke last night, and reiterated the issues facing the Australian economy:
“The improvement in the global environment is helping us here in Australia. Commodity prices are up and there has been some improvement in business sentiment as well. And investment outside the resources sector looks to be gradually lifting after being weak for many years. So this is positive news. Labour market conditions, though, remain pretty soft. Growth in employment is slow and wage growth is the lowest in some decades. We will want to see an improvement here before we can be confident that growth in the overall economy is strengthening.”
Again, a dovish tone. But again:
“The level of household debt in Australia is high and it is rising… slow growth in wages is making it harder for some households to pay down their debt. For many people, the high debt levels and low wage growth are a sobering combination.”
So how to save the economy from stagnating, as consumers look to reducing debt rather than spending what little wage growth they have? How can the RBA provide the appropriate stimulus without further driving runaway housing investment?
From the statement once more:
“By reinforcing strong lending standards, the recently announced supervisory measures [by APRA] should help address the risks associated with high and rising levels of indebtedness. Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the Australian market would also be a positive development.”
It just might be that the RBA believes it may be in a position to further cut the cash rate now prudential controls have been placed on investor loans in general and on investor interest-only loans in particular. It is also interesting to hear an RBA governor speaking directly to the banks (“lenders”) in a policy statement. I don’t recall such overtness from Glenn Stevens.
The RBA didn’t cut yesterday, but it’s a case of “watch this space”.
Investors were watching – financials were down -0.7% yesterday, matched in weakness only by telcos (-0.7%) which for some reason go up and then down every other day. Insurance companies in the financial sector were still being sold despite analyst suggestions of a minimal Debbie impact, but turning the screws on the banks clearly has bank investors concerned.
Moves in other sectors were less significant, and it is interesting to note that despite falls in the prices of oil, iron ore and base metals, materials was the best performing sector on the day with a 0.2% gain, and energy was flat. Materials was boosted by the stronger gold price.
The resource sectors in general would have been pleased with yesterday’s local trade data. Australia’s trade surplus jumped to $3.5bn in February from $1.5bn in January when economists had forecast $1.9bn. Exports rose by only 1% but imports fell by -5%.
Economists note, however, that while the RBA’s commodity price index is up 5.9% for the March quarter, suggesting further improvement in export values, Debbie will have her say in upcoming data given disruption to coal production, transport and shipping.
Nothing to see here
The WTI price jumped back almost 2% last night on the first set of weekly US crude inventory data, which showed a drop after a couple of weeks of record builds. That was about the only factor that managed to pique Wall Street’s interest last night. Otherwise the session was universally described as “dull”.
Supposedly the Trump camp is going to take another stab at healthcare, and presently is throwing around ideas with regard tax reform. While cutting the corporate tax rate is the primary goal of reform, on the other side of the ledger there’s the feared BAT and now, would you believe, there is suggestion of perhaps imposing a GST and/or carbon tax.
Hi Carumba. Perhaps Trump might want to send a delegate on a fact-finding mission downunder to gauge how these ideas might go down.
Meanwhile, Wall Street awaits Friday’s jobs report and there is much anticipation beforehand of the Trump vs Xi bout for the title of heavyweight champion of the world. The bell rings tonight.
Wall Street will likely drift along until there is something new to clasp on to.
Commodities
West Texas crude is up US84c at US$51.09/bbl.
Aluminium dipped slightly in London last night but all other base metals were up 0.5-1.5%.
With China closed, iron ore rose US10c to US$78.80/t.
Gold is up another couple of dollars at US$1255.70/oz with the US dollar index remaining flat at 100.54.
The Aussie is down -0.65 at US$0.7563.
Today
The SPI Overnight closed up 27 points or 0.5%. Seems ambitious under the circumstances, but every time I say that I’m usually proved wrong.
It’s service sector PMI day across most of the globe today while Wall Street will be able to muse over a combination of the minutes of the March Fed meeting, that of rate hike fame, and the ADP private sector jobs report.
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