WHERE ARE RATES HEADING?
Posted on 02. Dec, 2009 by Anthony in Economic News, Stock Broker Reports
A quick Mid week report, especially after yesterday’s developments..
It seems while almost everyone was expecting Aussie interest rates to climb by another 25 basis points to 3.75%, no one was expecting Westpac bank to raise rates greater than the reserve bank and again a huge surprise by the amount too at 0.45%.
This will certainly leave the door open for other Aussie banks that are still feeling any liquidity issues to do the same this week.. One has to ask-
“WHY THE INCREASE GREATER THAN THE RESERVE BANK”? – AINT THINGS GETTING BETTER”?
This has me thinking 2 things…
1) What do they know or fear around the corner still, Was Dubai the start of new surprises?
OR
2) While banks are still hurting internationally, Aussie banks must be very confident to try and grab more money from its customers by increasing their interest rates spreads to cover write off’s on their bank books – “SURELY A POSITIVE FOR SHARE HOLDERS AND PROFITS”…
Over time we will find out folks……..
Meanwhile overnight Euro zone Unemployment increased to 9.8% unemployed, nearly as bad as the U.S at 10.2% unemployed, these figures certainly make our Aussie Unemployment rate of 6% look fantastic however this means nothing to those without a job..
Like I have said recently it is all about NEW job creation not LAGGING job losses, once we see a strong volume new jobs being created only then we will know for certain our economy is in great health..
I still remain short term bullish for Gold and Gold stocks and bearish Bank stocks, by February 2010 this will change once again so long term holders of Bank stocks don’t panic and continue to hold strong..
Here is some info on the reserve banks comments yesterday, they certainly point towards another round of rate hikes next year in February when they meet up again..
? Further 25bp hike. The RBA Board today announced a further 25bp adjustment in the cash rate, bringing it to 3.75%. This was the 3rd hike in a row. The Board now does not meet until February 2nd.
? Still in the emergency zone. While rates are now 75bp above the cycle low of 3%, they still remain below their low of 4.25% in the last easing cycle. The statement acknowledges that it is appropriate to move rates out of the emergency zone given that the risks to the economic outlook have been gradually shifting to the upside.
The Bank continues to forecast trend economic growth during next year with inflation within the target.
? Statement sticks to gradual adjustment view. The RBA’s statement this month is a little more bullish on the economy but it is careful not to encourage markets too much in the one direction. This month it signalled that the adjustment in rates was now “material”.
? More gradual tightening to come. With rates still in the emergency zone, unless there is a setback to business and consumer confidence over the summer which looks unlikely, we continue to expect a 25bp rate rise in both February and March before the Bank temporarily pauses.
? Economic and company implications. Today’s rate rise does not change our positive outlook on economic growth nor for a gradual recovery in company profits next year. With rates monetary (and fiscal) policy still stimulatory it remains a positive for equity markets.
? Market pricing too cautious. Markets currently are pricing a 50% probability of a 25bp rate hike in February, but we expect markets to gradually increase their pricing as new data accumulate ahead of the February Board meeting.
Just what we all need for Christmas is knowing we will have another rate hike in the new year..
KEY DATA FOR DECEMBER…
Key data to watch include the November labour force (10 December), confidence readings (8 and 9 December) and Q3 GDP (16 December) and of course developments offshore
Expecting success
James McMurtrie
Meridian Financial Pty Ltd
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