Action Insight Daily Report
RBA Cuts 100bps, Yen Consolidates
RBA has the deepest rate cut since 1991, cut by 100bps, bringing the OCR down to six year low of 4.25%. Though, Aussie is supported by some speculations that RBA's easing cycle is close to an end, if not over and pares some of yesterday's losses. High yielders also take a breath as the Japanese yen retreats mildly from yesterday's sharp gain. BoJ left overnight call rate unchanged at 0.30% in an unscheduled meeting today and announced money market operation measures to facilitate corporate financing. Nevertheless, overall sentiments remains fragile and another round of yen rally is still expected as the day goes. Dollar index remains firm at around 87 level and rebound from 84.78 is still in favor to extend to retest 88.46 high. Crude oil dives to new low of 47.58 and remains pressured on worry of global recession.
While the rate cut is larger than "consensus" expectation of 75bps, RBA statement said that monetary policy is now in an "expansionary setting". RBA also noted that "together with the spending measures announced by the government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead." Some economists argue that this part of the statement suggests RBA is near to the end of the easing cycle, if not over. Considering that RBA will not meet again until Feb, it's clear that the bank is adopting a wait and see attitude for the effects of prior cumulative 300bps cut as well as various other stimulus moves on the economy. Nevertheless, note that Stevens didn't shut the door for the further easing yet and the rate outlook will very much depends on the upcoming economic data as well as development in the financial markets. Exchange rate of Aussie would probably remain driven by risk aversion/appetite the picture is cleared.
Also released from Australia earlier today, Australian retail sales surprisingly rose 0.7% mom in November, big improvement from -1.1% in September and better than market expectation of -0.2%. In terms of components, food and other retailing rose 0.4% and 7.6% respectively while others such as clothing and household goods dropped. As most of the gain was brought by 'other retailing' which is volatile in nature, we do not treat the rise as representative. In fact, given the sluggish economic growth and restrained domestic spending, we expect retail sales to be under pressure for some time.
In addition Australia reported a seasonally adjusted current account deficit of A$ 9.736B in 3Q08, better than consensus of a deficit of A$11.1B. The figure for 2Q08 was revised to deficit of A$14.043B from A$12.77B. The current account deficit has been narrowed for the second consecutive quarter and was helped by increase in export of coal and iron ore, especially to China, as well as reduced consumer spending on imported goods such as autos. The situation is expected to persist in the coming quarter. The net income deficit narrowed to A$11.07B in seasonally adjusted terms, the smallest in 3 years while goods and services trade balance recorded a surplus of A$1.43B from a deficit of A$1.26B.
Overnight, National Bureau of Economic Research (NBER) said that the US economy has been in recession since Dec 07. The report from NBER said that "domestic production and employment are the primary conceptual measures of economic activity" and payroll employment "reached a peak in December 2007 and has declined every month since then." Fed Bernanke said the room to lower interests from form the current 1% level is "obviously limited" even though it's still feasible. Fed will dig deeper into the toolkits instead and economists said that this could be the start of a shift to "quantitative easing" that resembles what BoJ did in 2001-2006.
Looking ahead, sharp decline in energy prices since Jul is expected to be reflected in further moderation in inflation in Europe. Swiss CPI is expected to drop from 2.6% yoy to 1.9% yoy in Nov. Eurozone PPI is expected to drop from 7.9% yoy to 7.1% yoy. UK construction PMI is expected to deteriorate further from 35.1 to 33.5 in Nov, signaling deeper contraction in the construction sector.
No comments:
Post a Comment