tag:blogger.com,1999:blog-2551752390539929112024-02-08T05:18:20.941-08:00Australian Debt Clock.com.au | BlogThe official blog of Australian Debt Clock.com.au. Committed to raising Australian awareness on the issue of our rising debt levels. Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-255175239053992911.post-78910097759592758942017-11-22T17:35:00.002-08:002017-11-22T17:35:57.300-08:00RBA very unlikely to move today<div class="MsoNormal" style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 21px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;">7<sup style="margin: 0px; padding: 0px;">th</sup> February 2017<o:p style="margin: 0px; padding: 0px;"></o:p></span></b></div>
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<span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;">RBA very unlikely to move today</b><o:p style="margin: 0px; padding: 0px;"></o:p></span></div>
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<span style="font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">The primary reason that the RBA will be less inclined to adjust the Cash Rate today is year-ended core Inflation (excluding volatile items) data for December 2016 amounted to 1.3%. This is well below the <a href="http://www.rba.gov.au/inflation/inflation-target.html" style="margin: 0px; padding: 0px;">2-3% RBA Inflation Target</a>over the Long Run. Outside of this, money markets have been consistently stable for months now and are providing yields well about the Cash Rate of 1.5%. This money market data suggests the RBA could actually raise the Cash Rate to bring more alignment to the CGS market. However, the bond markets only stabilised last year in November upon the Trump election result, as the markets moved to take more risk by moving moneys out of bonds and into equities. <a href="http://au.investing.com/rates-bonds/australia-government-bonds?maturity_from=100&maturity_to=230" style="margin: 0px; padding: 0px;">Click here</a> to view current CGS yield data. Though it is uncertain how stable this trend will be as we move further into the Trump Administration, the buzz word in financial markets at the moment being <i style="margin: 0px; padding: 0px;">‘uncertainty’. </i>Making it unwise for the RBA to increase the Cash Rate today.</span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-1426813656140836622017-02-06T18:11:00.000-08:002017-02-06T18:11:02.366-08:00 October Cash Rate cut most unlikely with conditions stable in the money markets and negative real interest rates<div class="xmsonormal" style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin: 0cm 0cm 0.0001pt; padding: 0px;">
<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><span style="font-family: georgia; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;">30<sup style="margin: 0px; padding: 0px;">th</sup><span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>September 2016</b></span><span style="font-family: Calibri, sans-serif; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></span></div>
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<b style="margin: 0px; padding: 0px;"><span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">October Cash Rate cut most unlikely with conditions stable in the money markets and negative real interest rates</span><span style="font-size: 11pt; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></span></b></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">It is no secret that the RBA look at a number of economic indicators when they go to board on the first Tuesday of each month (except January). What is a secret is the decision that they will make in the lead up to Tuesdays 2.30 announcement. The major factors that contribute to the RBA’s decision are clearly outlined on their website under the heading -<span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span><a href="http://www.rba.gov.au/monetary-policy/about.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank">What are the Objectives of Monetary Policy?</a>. These objectives are:<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: #212121; margin: 0px; padding: 0px;">-the stability of the currency of Australia;</span></i><span style="color: #212121; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: #212121; margin: 0px; padding: 0px;">-the maintenance of full employment in Australia; and</span></i><span style="color: #212121; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: #212121; margin: 0px; padding: 0px;">-the economic prosperity and welfare of the people of Australia.</span></i><span style="color: #212121; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Pivotal to these objectives is the RBAs use of the conventional method of targeting the annual inflation rate (through the CPI) within a range of 2-3%. While some economists are questioning the merit of this measure in the post GFC world, the newly appointed RBA Governor, Philip Lowe, has clearly stated his commitment to continuing the inflation target effort of 2-3%, saying In his <a href="http://www.rba.gov.au/speeches/2016/sp-gov-2016-09-22.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank">Opening Statement to the House of Representatives Standing Committee on Economics on 22<sup style="margin: 0px; padding: 0px;">nd</sup> September</a>;<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<i style="margin: 0px; padding: 0px;"><span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">‘Our view is that a flexible medium-term inflation target remains the right monetary policy framework for Australia. This was reaffirmed in the new <b style="margin: 0px; padding: 0px;">Statement<span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>on the Conduct of Monetary Policy</b>, which has also been endorsed by the Reserve Bank Board. The goal remains for CPI inflation to average between 2 and 3 per cent over time.’<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The evidence of effectiveness to the economy when changes to the Cash Rate occur can be seen more immediately in the money markets and foreign exchange market. However, effects to inflation, employment and GDP are more medium-long term based, where the evidence does not come available until months later upon the data being released.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The evidence suggests that the recent adjustment of the Cash Rate to 1.50% on the 3<sup style="margin: 0px; padding: 0px;">rd</sup><span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>August has stabilised the money markets, with the yield curve gaining a healthier shape and even <a href="http://www.investing.com/rates-bonds/australia-government-bonds" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">2 year CGS yields trading above the cash rate</a>. Though, the AUD has remained high, the RBA failing in their quest to achieve a lower AUD to stimulate economic growth through rising exports and help to increase inflation to target levels through the rising cost of imports.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">However, they have succeeded in achieving negative real interest rates; equal to the Cash Rate minus inflation.<span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span><a href="http://www.rba.gov.au/inflation/measures-cpi.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank">Core inflation (excluding volatile items)</a><span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>is the gauge that the RBA considers when making their decision on Monetary Policy, and this came in at a figure of 1.6% (Jun-15 to Jun-16) on the 27<sup style="margin: 0px; padding: 0px;">th</sup><span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>July one week prior to the RBA’s August board meeting. This equates the Real Cash Rate to be -0.1% meaning when investors borrow money at 1.5%, their borrowing costs are lower than the rate of inflation, making it easy achieve a return on investment. Of course, this is theory based because only Authorised Australian Financial Institution have access to borrow money at the Cash Rate, but the idea is that it will translate into more profitable opportunities throughout the banking system and stimulate monetary expansion.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #212121; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Conclusively, it is highly unlikely that the RBA will cut the Cash Rate again soon, in light of the stabilised of money markets and negative real interest rates. Both, outcomes of the August rate cut. </span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-66508905173991955302016-09-30T16:00:00.000-07:002016-09-30T16:00:01.896-07:00September Rate Cut is not Completely out of the Question<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><span lang="EN-AU" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">6th September 2016</span></span></b></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span lang="EN-AU" style="margin: 0px; padding: 0px;">September Rate Cut is not Completely out of the Question</span></b> </span></div>
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<span lang="EN-AU" style="margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">While it is highly unlikely, <a href="http://www.rba.gov.au/" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">the RBA could further cut interest rates today</a> when they meet for their decision on monetary policy for the month. In light of the 25 basic point cut last month, the AUD/USD actually increased by almost 1 cent when averaged over the month of August to July. This being counter logical to the outcome of a 20% reduction in the interest rate differential between Australian and the United States in a pre GFC world. Theoretically, lower AUD would increase import prices and decrease export prices, resulting in higher inflation, lower unemployment and higher economic growth. If the RBA are resolute to increase inflation to their targeted 2-3% range, and increase employment and economic growth, a .25% rate cut could be on the table at 2:30PM today. However, given <a href="http://www.asx.com.au/prices/targetratetracker.htm" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">the ASX 30 Day Interbank Cash Rate Futures</a> is indicating only a 5% expectation of a decrease in the cash rate to 1.25%, this would be a black swan for market expectations.</span><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<br />Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com2tag:blogger.com,1999:blog-255175239053992911.post-42865026197552590332016-09-05T16:26:00.001-07:002016-09-05T16:30:11.144-07:00August 2016 Cash Rate cut is more than likely<div class="MsoNormal" style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin-bottom: 0.0001pt; margin-top: 10px; padding: 0px;">
<b style="color: black; font-family: Times; font-size: medium; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia" , serif; font-size: 12pt; margin: 0px; padding: 0px;">30th July 2016</span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">August 2016 Cash Rate cut is more than likely<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></b></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">Key points:<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></b></div>
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<i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">-CPI inflation hits a 17 year low<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">-Money markets Overnight Indexed Swaps (OIS) are at new lows<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">-Government bond yields are moving into 1.50% territory<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">-24/25 economists surveyed believe there will be an August Rate cut<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">-As at Friday 29<sup style="margin: 0px; padding: 0px;">th</sup> July, the ASX 30 Day Interbank Cash Rate Futures indicated an August interest rate decrease expectation of 64%<span style="margin: 0px; padding: 0px;"> </span><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">CPI<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">On Wednesday the Australian Bureau of Statistics (ABS) released their quarterly result of the Consumer Price Index (CPI) for inflation, which came in at 1.0% from June 2015 to June 2016. This sits well below the <a href="http://www.rba.gov.au/inflation/inflation-target.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">RBA’s targeted bandwidth of 2 to 3%</a>. While the RBA do account for removing volatility when making the monthly decision on Cash Rate movements, the Core Inflation number (‘excluding volatile items’) still came in at <a href="http://www.rba.gov.au/inflation/measures-cpi.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">1.6%</a> that is again below their targeted range. This is the lowest annualised reading since the quarter ending December 1999.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">Money Markets<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">In the money markets, where Australian financial institutions manage their returns from borrowing and lending, the 1-month Overnight Indexed Swap (OIS) rates reached a new low of 1.623%. An overnight index swap is a swap contract for the overnight rate to be exchanged for a fixed interest rate. This indicates that Australian financial institutions are hedging to prepare their exposure to an August rate cut.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">Government Bonds<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">The market for Commonwealth Government Securities (CGS) is yet again showing signs of a weakening economy, with negative spreads on yields between 2 year and 3 year bonds. This points to the reality that investment institutions have a preference of 3 year CGS over 2 year CGS because they expect interest rates to be lower for longer. 3 year CGS yields dipped to a new low of 1.47% below the anticipated 1.50% August Cash rate. 10 year CGS yield also hit a new low in July of 1.865%.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">Predictions of Economist<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">In mid July, Bloomberg surveyed 25 economists to get their views on an August rate cut. These economists undoubtedly stay very tuned to the above data movements, and have based their expectations on the RBAs Cash Rate decision for August accordingly. <a href="http://www.abc.net.au/news/2016-07-19/reserve-bank-interest-rate-cut-almost-in-the-bag/7641962" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">24 out of the 25 predict an August rate cut</a>.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">The ASX 30 Day Interbank Cash Rate Futures<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: "georgia"; font-size: small; margin: 0px; padding: 0px;">On 4<sup style="margin: 0px; padding: 0px;">th</sup> July, the Melbourne Institute released their <a href="https://www.melbourneinstitute.com/miaesr/publications/indicators/tdsec.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">Monthly Inflation Gauge</a> that came in at a 0.6% rise in prices for the month of June. This brought the annual Melbourne Institute inflation figure to 1.5%. The release is widely recognised as an accurate forecast for the ABSs CPI release. This low result shifted <a href="http://www.asx.com.au/prices/targetratetracker.htm" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">the ASX 30 Day Interbank Cash Rate Futures</a> market to indicate an August Cash Rate cut expectation of above 50%, which later in the month reached a high of 70%.</span></span></div>
<br />Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-64267192745040985432016-07-30T01:15:00.002-07:002016-07-30T01:15:25.140-07:00U.S. Federal Reserve Breaks Bad<div class="MsoNormal" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 21px; margin-bottom: 0.0001pt; padding: 0px;">
<b style="color: black; font-family: Times; font-size: medium; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia, serif; font-size: 12pt; margin: 0px; padding: 0px;">Blog Post 12| 27th December 2015</span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; margin: 0px; padding: 0px;"><span style="font-size: medium; margin: 0px; padding: 0px;">U.S. Federal Reserve Breaks Bad</span><span style="font-size: small; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></span></b></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">In the wind up of 2015 the Federal Reserve (FED, U.S. Central Bank) has made a counter logical (logical, in terms of their theoretical mandate) decision to increase interest rates, effectively reducing the amount of liquidity that will be available into 2016. <b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;">On 17th December 2015 the FED made the decision to raise he Federal Funds Rate from a range of 0-0.25% to 0.25-0.5%, the first increase since 16<sup style="margin: 0px; padding: 0px;">th</sup> December 2008 in light of the Global Financial Crisis (GFC).</i></b> In making this pivotal decision of U.S. monetary policy the FED have effectively broken their directive to target 2% inflation, which in their words:<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;">‘…</span></i><i style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;">inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment.’</span></i><span lang="EN-US" style="margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Source: <a href="http://www.federalreserve.gov/faqs/economy_14400.htm" style="margin: 0px; padding: 0px;">U.S. Federal Reserve</a><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Although this is a relatively small increase to the rate at which U.S. private banks borrow from the FE, and future increases are forecast to be gradual; inflation only averaged 0.07% from January 2015 to November 2015. And, the FED did say in their 16<sup style="margin: 0px; padding: 0px;">th </sup>December press release:<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;">‘…it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective.’</span><b style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></b></span></i></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Source: <a href="http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm" style="margin: 0px; padding: 0px;">U.S. Federal Reserve</a><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">However, modern central banking theory and empirical evidence only support the use of, what is conventionally known as contractionary monetary policy (reducing the money supply through raising interest rates), to invoke a decrease to inflation. This is exactly the opposite outcome the U.S. FED is looking to achieve through its monetary policy efforts.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<b style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">What is the issue with low inflation or deflation?<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></b></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">An economy naturally requires more real (inflation adjusted) spending in the current period relative to the previous period to achieve real growth. If prices are stagnant or decreasing, it removes the incentive for consumers and investors to purchase in this current period with the knowledge that they can pay the same amount or even less in the next period. This decreases spending and subsequently economic growth.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Japan has experienced these very economic phenomena since the 1990’s when they began on a course of low inflation/deflation on the back of asset bubbles bursting in both the share markets and the real estate markets. Resultantly, real GDP stagnated in Japan, though they were able to alleviate some of this downward pressure to growth through being a net exporter of goods and services. From January 2000 to March 2014 monthly inflation of consumer prices averaged -0.01%, and over this same period quarterly GDP growth averaged a mere 0.2%.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<b style="margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">What is the probable outcome?<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></b></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Through increasing interest rates the FED will impose lower inflation on the U.S. economy, reducing inflation to lower levels than before the interest rate rise that will likely bring about a situation of no inflation or deflation to U.S. prices. The overall effect of this is probable to be lower GDP growth and a greater risk of a recession in 2016.</span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-19748006712786888302015-12-26T12:51:00.002-08:002015-12-26T12:51:34.081-08:00Australia needs more cash!<div class="MsoNormal" style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin-bottom: 0.0001pt; margin-top: 10px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia, serif; font-size: 12pt; margin: 0px; padding: 0px;">Blog Post 11| 28th October 2015</span></i></b><span style="font-family: Arial, sans-serif; font-size: 10.5pt; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></span></i></b></div>
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<span style="color: black; line-height: 21.3px; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;">Australia needs more cash!</b></span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">One of the major changes that has occurred over the past 20 to 30 years, since the days of financial deregulation, is the decline in the percentage of cash </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">(liquid of currency) to bank assets (private debt). See graph 11.1 below:</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">Graph 11.1</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">This is significant because a ratio of this nature represents our nations ultimate ability to pay off the e </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">debt. In other words, the private sector using a bigger credit card to finance </span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">the existing credit card debt. The credit card being an analogy as most of this </span><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">debt is these actual loans that are collateralise with assets. Albeit, there is an argument for these loans being undercollateralised on the back of overvalued </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">asset prices, but lets not go there for now.</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">Over time the common trend is that when interest rates are decreased </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">(through the cash rate)</span><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">, </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">currency volumes need to increase to reduce the value of money into the future. </span><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">Similarly, when interest rates are increased, currency volumes need to decrease </span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">to increase the value of money into the future. In order to balance the ratio of </span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">cash to private debt, interest rates will need to come down further, in conjunction with some </span><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">form of quantitative easing (increasing the currency supply and circulating this currency through buying government bonds from the banks). </span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">An argument for a sustainable rise to the cash rate in the near future has little merit given this long term trend.</span></span></div>
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Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-42680732668390946912015-10-27T19:27:00.004-07:002015-10-27T19:28:02.345-07:00Interest only mortgage loans under scrutiny by ASIC <b style="color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia, serif; font-size: 12pt; margin: 0px; padding: 0px;">Blog Post 10| 27<sup style="margin: 0px; padding: 0px;">th</sup> August 2015</span></i></b><br />
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<b style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">Interest only mortgage loans under scrutiny by ASIC</span></span></b></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The Australian Securities and Investment Commission (ASIC) are cracking down on interest only loans in the mortgage market suggesting a portion are at risk of default. This is an important initiative on the behalf of the regulator watchdog as in the mortgage market owner-occupiers mortgages interest only repayments equates to over 25% of the market and in the investor mortgage market this statistic is up around 60%. See chart 10.1 below from the </span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">March 2015</span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;"> RBA Financial Stability Review:</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 10.1</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><a href="http://www.rba.gov.au/publications/fsr/2015/mar/graphs/graph-3.6.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="" title="">Click here to reference chart on the RBA website</a>.</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="background-color: rgba(255, 255, 255, 0); margin: 0px; padding: 0px;">The ABC News quoted ASIC last week saying:</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="background-color: rgba(255, 255, 255, 0); margin: 0px; padding: 0px;">'Interest-only loans offer a period, typically up to five years, where the borrower only has to pay the interest on the loan, rather than also paying down the principal.</span><o:p style="margin: 0px; padding: 0px;"></o:p></span></div>
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<span style="background-color: rgba(255, 255, 255, 0); color: black; font-family: georgia; font-size: x-small; line-height: 21.3px; margin: 0px; padding: 0px;">This makes repayments lower in the short-term, but higher over the life of the loan.</span></div>
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<span style="background-color: rgba(255, 255, 255, 0); color: black; font-family: georgia; font-size: x-small; line-height: 21.3px; margin: 0px; padding: 0px;">'The ASIC review of 140 individual loans found that in more than 30 per cent of cases there was no evidence the lender had considered whether the applicant could afford their repayments over the long term.</span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="background-color: rgba(255, 255, 255, 0); margin: 0px; padding: 0px;">ASIC said in 20 per cent of cases the lenders had not considered the actual living expenses of applicants and in 40 per cent of files they had incorrectly calculated the affordability of the loan.' <a href="http://mobile.abc.net.au/news/2015-08-20/many-interest-only-home-loan-customers-at-risk/6711784" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="" title="">Click here to reference the article</a>.</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;"><span style="background-color: rgba(255, 255, 255, 0); margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;"><span style="background-color: rgba(255, 255, 255, 0); margin: 0px; padding: 0px;">However, as mentioned in an article from <a href="http://http//www.bankingday.com/" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="" title="">Banking Day</a> yesterday - </span></span><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;"><a href="http://http//www.bankingday.com/nl06_news_selected.php?act=2&stream=1&selkey=19302&hlc=2&hlw=" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="" title="">ASIC's call for better responsible lending compliance easier said than done</a>. ASIC is questioning a large percentage of these loans they have reviewed to date suggesting lending practice regulation were not met. Gadens Lawyers said;</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">'"ASIC found that most lenders did not appear to be making sufficient inquiries in relation to requirements and objectives or, if they were, lenders were not recording their findings."'</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;"></span></span><span style="font-family: georgia; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">King & Wood Mallesons law firm</span><span style="color: black; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;"> said;</span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="line-height: 21.3px; margin: 0px; padding: 0px;">'"ASIC comments that in the context of an interest-only loan recording the objective or requirement of a borrower is ‘to purchase property’ is insufficient because it does not address why an interest-only loan as opposed to a principal and interest loan would better meet the borrower's objectives... W</span></span><span style="color: black; font-family: georgia; font-size: small; line-height: 21.3px; margin: 0px; padding: 0px;">ithout ASIC providing guidance on what is appropriate for each type of credit product it is hard to know what will satisfy the obligation."'</span></div>
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Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com3tag:blogger.com,1999:blog-255175239053992911.post-14871118456453895792015-08-26T15:08:00.001-07:002015-08-26T15:08:09.390-07:00Just in time delivery<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;">Blog Post 9 | 5<sup style="margin: 0px; padding: 0px;">th </sup>May 2015<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></b></div>
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<span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><a href="http://www.rba.gov.au/media-releases/2015/mr-15-08.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank" title="">The decision by the RBA to cut the cash rate by 25 basis points in May</a> has proven quiet effective in stabilising money markets since early May. 3 year CGS yields have normalised to above 2 year CGS yields, though this spread is again narrowing.</span><span style="color: black; font-family: georgia; font-size: medium; line-height: 21.2999992370605px; margin: 0px; padding: 0px;"> </span></div>
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<span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><span style="line-height: 21.2999992370605px; margin: 0px; padding: 0px;">Meanwhile the RBA is in between a rock and a hard place; a tiring economy that yearns for liquidity to improve the balance sheets of banks facilitating improvements to borrowing throughout the economy </span></span><span style="color: black; font-family: georgia; font-size: medium; line-height: 21.2999992370605px; margin: 0px; padding: 0px;">(enabled via reducing the Cash Rate)</span><span style="color: black; font-family: georgia; font-size: medium; line-height: 21.2999992370605px; margin: 0px; padding: 0px;"> and a hungry housing market that is gobbling up cheap money, making housing less affordable and generating a potential asset bubble. </span></div>
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<span style="color: black; font-family: georgia; font-size: medium; margin: 0px; padding: 0px;"><span style="line-height: 21.2999992370605px; margin: 0px; padding: 0px;">For now, the stabilisation of money markets suggests that May rate cut decision was timely. The economic picture could have been quiet different now and into the future had they continued to hold off on cutting the cash rate.</span></span></div>
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Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-24241777846011057502015-06-19T19:11:00.000-07:002015-06-19T19:11:12.359-07:00Will they cut in May?<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;">Blog Post 8 | 5<sup style="margin: 0px; padding: 0px;">th </sup>May 2015<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><br /></span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><b style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; font-style: normal; margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">Will they cut in May?</span></span></span></b></span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><b style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; font-style: normal; margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><br /></span></span></span></b></span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><b style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; font-style: normal; margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><div class="MsoNormal" style="color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; font-weight: normal; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;">The 30, 90 and 180 Bank Accepted Bills (BABs) rates dropped to 2.15, 2.17 and 2.25 per cent respectively yesterday (04/05/2015). <a href="http://www.abc.net.au/news/2015-05-05/reserve-bank-poised-to-cut-interest-rates/6445452" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">An increasing amount of economists are siding with the argument for a rate cut</a>. Will the RBA pull the trigger at 2.30pm today? Or, will they play devil advocate?</span></span></div>
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Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-29081424762837821812015-05-04T23:27:00.002-07:002015-05-04T23:27:13.674-07:00Even more signals for lower interest rates<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt;">
<b><i><span style="font-family: Georgia, serif; font-size: 13.5pt;">Blog Post 7 | 21<sup>st</sup> April
2015</span></i></b><span style="color: #595959; font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU;"><o:p></o:p></span></div>
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<b><span style="font-family: Georgia, serif; font-size: 13.5pt;">Even more signals for lower interest
rates</span></b><span style="color: #595959; font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU;"><o:p></o:p></span></div>
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<span style="font-family: Georgia, serif; font-size: 12pt;">The spread on 3 year Commonwealth
Government Securities (CGS) and 2 year CGS has widened to 5 basis points; 1.82
per cent and 1.87 percent respectively as at 20<sup>th</sup> April 2015.
This indicates that fund managers prefer 3 year bonds to 2 year bonds as they
foresee the cash rate being lower for longer on the back of Australian economic
conditions continuing to deteriorate. </span><span style="color: #595959; font-family: "Georgia","serif"; font-size: 12.0pt; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU;"> </span><span style="color: #595959; font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU;"><o:p></o:p></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-40442332376120904212015-04-20T20:23:00.003-07:002015-04-20T20:28:09.546-07:00Should the cash rate have been cut on Tuesday?<div class="MsoNormal" style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 21px; padding: 0px;">
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;">Blog Post 6 | 9<sup style="margin: 0px; padding: 0px;">th</sup> April 2015</i></b><o:p style="margin: 0px; padding: 0px;"></o:p></span></div>
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<b style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">Should the cash rate have been cut on Tuesday?</span><o:p style="margin: 0px; padding: 0px;"></o:p></span></b></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Callam Pickering from Business Spectator wrote a great follow up piece to the absence of a cash rate cut on Tuesday entitled <a href="http://www.businessspectator.com.au/article/2015/4/8/reserve-bank-australia/has-monetary-policy-failed-australias-economy" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank" title="">Has monetary policy failed Australia’s economy?</a> The article raised the question ‘What’s the counterfactual?’ … i.e. ‘Based on the historical relationship between interest rates and growth, there is a non-trivial possibility that if the cash rate was at, say, 3.5 or 4 per cent, then the Australian economy would either be in a recession or well on its way to one.’ Callam raises a very interesting point of the consequences of not cutting the cash rate in time before it causes adversity to economic growth and conditions, and having formerly worked for the <a href="https://au.linkedin.com/pub/callam-pickering/9/554/405" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;" target="_blank" title="">Reserve Bank of Australia</a> his opinion is one of validity.<span style="margin: 0px; padding: 0px;"> </span></span><o:p style="margin: 0px; padding: 0px;"></o:p></span></div>
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Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-71869204386444805622015-04-08T23:27:00.001-07:002015-04-08T23:27:26.981-07:00An April Cash rate cut is looking more likely<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 15.75pt; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;">Blog Post 5 | 3<sup style="margin: 0px; padding: 0px;">rd</sup> April 2015</span></i></b></span></div>
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<span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></i></b></span></div>
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<span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;">An April Cash rate cut is looking more likely</span></b><span style="color: #5b5b5b; font-family: Arial; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 15.75pt; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">The 30, 90 and 180 Bank Accepted Bills (BABs) have all dipped below the Cash rate in recent days. This will put pressure on the RBA to reduce the Cash rate this coming Tuesday when it goes to board for this month. Chart 5.1 shows the BABs rates against the Cash rate for 2015:</span></span></div>
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<span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">Chart 5.1</span></span><span style="color: black; font-family: Georgia; font-size: small; line-height: 15.75pt; margin: 0px; padding: 0px;"> </span></div>
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<span style="color: #5b5b5b; font-family: Arial; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"> </span></o:p></span><img align="none" alt="" src="http://imagizer.imageshack.us/v2/640x480q90/540/VN3t0c.png" style="margin: 0px; padding: 0px;" /></div>
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<div class="MsoNormal" style="background-color: white; color: #595959; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 15.75pt; margin-bottom: 10px; margin-top: 10px; padding: 0px;">
<span style="color: black; font-family: Georgia; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><a href="http://www.abc.net.au/news/2015-04-02/low-inflation-opens-door-to-further-interest-rate-cuts/6368432?section=business" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">Preliminary research indicates the annual inflation rate rose to 1.5 per cent last month</a>, which is still below the <a href="http://www.rba.gov.au/inflation/inflation-target.html" style="color: #595959; font-size: 14px; margin: 0px; padding: 0px;">RBAs 2 to 3 per cent target range</a>. This also supports the case for a lower cash rate this month.</span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-35567837370129479362015-04-06T21:51:00.002-07:002015-04-20T20:27:56.190-07:00More signals for lower interest rates<div class="MsoNormal" style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 21px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;">Blog Post 4 | 23<sup style="margin: 0px; padding: 0px;">rd</sup> March 2015<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></span></b></div>
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<b style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; font-size: small; margin: 0px; padding: 0px;">More signals for lower interest rates<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></b></div>
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<span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></span></span></div>
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<span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;">T</span></span></span><span style="color: black; font-family: Georgia, serif; font-size: small; margin: 0px; padding: 0px;">he market for 3 year CGS did stabilise in mid-February to mid-March, with yields rising back to a normal level above 2 year CGS yields. However, this was short lived as demand for 3 year CGS has driven the yield again below 2 year CGS yields in recent days. See table 4.1 below:</span></div>
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<span style="color: black; font-family: Georgia, serif; font-size: small; margin: 0px; padding: 0px;">Table 4.1</span></div>
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<img align="none" alt="" src="http://imagizer.imageshack.us/v2/640x480q90/909/iKzvX0.png" style="margin: 0px; padding: 0px;" /></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-566800022936621512015-04-06T21:50:00.002-07:002015-04-06T21:50:46.925-07:00 Who is paying the additional interest on the debt?<div class="MsoNormal" style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 21px; padding: 0px;">
<b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Blog 3 | 24<sup style="margin: 0px; padding: 0px;">th</sup> February 2015</span></span></i></b></div>
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<b style="margin: 0px; padding: 0px;"><span style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Who is paying the additional interest on the debt?</span></span></b></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;"><br style="margin: 0px; padding: 0px;" /></span></span></div>
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<span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span lang="EN-US" style="margin: 0px; padding: 0px;">Much has changed in the world since the Financial Crisis of September 2008. Structural changes to financial markets have been a necessary evolution from this broadly unforeseen event. One of the major structural changes here in Australia has been the issuance of Commonwealth Government Securities (CGS) that has grown over 6 fold since September 2008; Australian Financial Intermediaries</span><span lang="EN-US" style="margin: 0px; padding: 0px;">(AFIs</span><span lang="EN-US" style="margin: 0px; padding: 0px;">) being are the largest domestic buyers of these instruments. The main reason for this is to ensure that in the event of a future financial crisis here in Australia the <a href="http://www.rba.gov.au/" style="margin: 0px; padding: 0px;">RBA</a> would be able to inject liquidity into to AFIs quickly by printing currency and buying these holdings of bonds from the AFIs in a process known as Quantitative Easing (QE). This precautionary measure places the Australian banking system in much better position to weather a financial storm, but does come at a price. Chart 3.1 shows the change in the holdings of CGS and local and semi-government and other public authority securities by AFIs since January 2000.</span><span lang="EN-US" style="margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 3.1<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The Australian Office of Financial Management (AOFM) is the body responsible for managing the market for issuing CGS. They regularly update the value of CGS on issue on their website <a href="http://www.aofm.gov.au/" style="margin: 0px; padding: 0px;">www.aofm.gov.au</a>. Graph 3.2 shows the growth in CGS on issue since January 2000.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 3.2</span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">As at January 2000 when the Cash Rate was 5% interest on CGS was an average of 6.88% pa (across the 2yr, 3yr, 5yr and 10yr terms), which on an account of AU$79.78 billion was AU$5.49 billion pa. As at September when the Cash Rate was 2.5% interest on CGS was an average of 3.01% pa (across the 2yr, 3yr, 5yr and 10yr terms), which on an account of AU$368.47 billion was AU$11.10 billion. Chart 3.3 shows the quarterly change in annual interest on CGS since March 2000.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 3.3<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;"> </span></o:p></span><img align="none" alt="" src="http://imagizer.imageshack.us/v2/640x480q90/538/JnqoCd.png" style="font-size: 27.027027130127px; margin: 0px; padding: 0px;" /></div>
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<span lang="EN-US" style="margin: 0px; padding: 0px;"><span style="color: black; font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The question is - who is paying the additional interest on the debt? And, who should be responsible to pay it?</span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-44654776067121179822015-04-06T21:49:00.002-07:002015-04-06T21:49:38.759-07:00Cut or Not To Cut…<div style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 18pt; margin: 0cm 0cm 0.0001pt; padding: 0px;">
<span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">Blog post 2 | 3<sup style="margin: 0px; padding: 0px;">rd</sup><span class="apple-converted-space" style="margin: 0px; padding: 0px;"> </span>February 2015</span><span style="color: #333333; margin: 0px; padding: 0px;"><u1:p style="margin: 0px; padding: 0px;"></u1:p></span></span></i></b><span style="font-family: Arial, sans-serif; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">Cut or Not To Cut…</span></span></b><b style="margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><o:p style="margin: 0px; padding: 0px;"></o:p></span></b></span></div>
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<span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">As we get closer to the release of the RBA’s interest rate decision release today at 2.30pm AEDT, one of the key factors they will need to take into account is the Bank Accepted Bills (BAB) data which estimates end of day bank bill rates. See Chart 2.1 below:</span><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span style="color: black; margin: 0px; padding: 0px;">Chart 2.1</span></b><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: black; margin: 0px; padding: 0px;"><span style="font-size: small; margin: 0px; padding: 0px;"><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;">Without an interest rate cut and an increase in the supply of liquidity, the cost of funding between the banks in the short-term will undoubtedly rise. </span></span><span style="font-family: Georgia, serif; margin: 0px; padding: 0px;"> </span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0tag:blogger.com,1999:blog-255175239053992911.post-78694840704359666582015-04-06T21:47:00.000-07:002015-04-06T21:47:40.389-07:00Interest Rates in 2015<div style="color: #5b5b5b; font-family: Arial, Helvetica, sans-serif; font-size: 14px; line-height: 18pt; padding: 0px;">
<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><i style="margin: 0px; padding: 0px;">Blog post 1 | 6<sup style="margin: 0px; padding: 0px;">th</sup> January 2015</i></b><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;">Interest Rates in 2015</b><o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Happy New Year everyone!<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">We thought it would be a great idea to kick off 2015 with a blog to help provide more information around what is happening in the Australian economy. 2014 was an economically challenging year on many fronts; the Federal Government’s efforts to balance the budget have put negative pressure on national spending, the consistent downward trend of commodity prices since February-March 2014 has downsized the flow of funds from the mining boom, unemployment has steadily crept up to 6.3%, and business and consumer confidence are both declined to lows in the final reports of the year.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><span style="color: #333333; margin: 0px; padding: 0px;">It is for this reason that many senior banking economists have revised their outlook for future changes to Cash Rate by Reserve Bank of Australia (RBA). </span><a href="http://www.smh.com.au/business/the-economy/nab-predicts-two-interest-rate-cuts-after-gloomy-business-confidence-survey-20141209-123522.html" style="margin: 0px; padding: 0px;">NAB</a><span style="color: #333333; margin: 0px; padding: 0px;">, </span><a href="http://www.canberratimes.com.au/money/interest-rates-unlikely-to-fall-further-in-2015-20141226-12e0t1.html" style="margin: 0px; padding: 0px;">Westpac and Deutsche Bank</a><span style="color: #333333; margin: 0px; padding: 0px;"> all foresee a 0.5 percentage point cut for 2015, with a 0.25 percentage point cut in first few months of the year. This prediction is in line with the trending market yields on <a href="http://aofm.gov.au/commonwealth-government-securities/" style="margin: 0px; padding: 0px;" target="" title="">Commonwealth Government Securities (CGS</a>), which are bonds issued by the Federal Government. Chart 1.1 shows this relationship in a graph.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 1.1</span></b></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">The market for CGS is seen to historically lead the Cash Rate, as these yields are a reflection of the market price for the future value of money. The Cash Rate is the interest rate that the RBA sets in the market for overnight funds between the banks. When the RBA reduces the Cash Rate they increase the supply of cash (currency), which in turn dilute the value of money into the future.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 1.2 shows a close up of the resent downward trend of CGS.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><b style="margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Chart 1.2</span></b></span></div>
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<span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;"><img align="none" alt="CGS to Cash Rate" src="http://imagizer.imageshack.us/v2/640x480q90/538/aKNgs1.jpg" style="margin: 0px; padding: 0px;" /></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Note the trend of 2 year and 3 year CGS circled in red; 3 year CGS have in recent weeks trended lower than 2 year CGS. What this indicates is that investors (albeit fund managers who represent their investors) expect interest rates to be lower for longer so they see more value in holding 3 year bonds over 2 year bonds. In other words, investors are not confident that the Australian economy will improve enough to warrant the RBA to raise the Cash Rate any time soon.<o:p style="margin: 0px; padding: 0px;"></o:p></span></span></div>
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<span style="color: #333333; margin: 0px; padding: 0px;"><span style="font-family: georgia; font-size: small; margin: 0px; padding: 0px;">Ultimately, if the market for CGS continues to decline it is likely that we will see interest rate cuts into 2015.</span></span></div>
Anonymoushttp://www.blogger.com/profile/01107123551312008786noreply@blogger.com0