Friday, August 28, 2009

An October rate hike?

Rory Robertson is giving it credence:

"The October rate-hike bandwagon now is rolling fast. Analysts quickly confirmed that October is six months after April (the month of the final rate cut), and that the RBA generally likes to leave “at least six months” between changes in the direction of policy. The next phase of speculation will involve analysts highlighting the prospect of 50bp rather than 25bp hikes, given we’re starting from an extraordinarily low 3%.

I’ve always thought the RBA before hiking would wait until full-time employment stopped shrinking. That’s not wrong yet, but the story is under serious pressure, and I’m no longer rubbishing the fast-tracking of rate-hike prospects. With momentum for an October hike building, it may now take a particularly weak August jobs report on 10 September to nip such a move in the bud. (If I’m wrong and falling full-time employment is not enough to stop an early 25bp hike, the weakness - or strength - of each subsequent jobs report will influence the speed with which further hikes towards 4-5% or higher are delivered.)

Another possibility is that the latest sharp rise in market rates – 20bp or more in parts of the curve - will prompt major lenders to “top up” their mortgage rates before any RBA move, thus delaying official action."


carbonsink said...

Meanwhile, China is putting the brakes on steel production.

Fixed-asset investment in China increased 33.5 percent in the first half as local banks made a record $1.1 trillion of new loans in the first six months. That fueled growth in steel production to record levels in July, leading to a 12 percent drop in China’s benchmark steel prices in the two weeks ended Aug. 21. The China Iron & Steel Association said last month that the risk of a “market glut is piling up.”

I know I'm a bit dim, but can someone please explain to me why iron ore prices are going through the roof, when iron ore stockpiles are growing, steel stockpiles are growing, steel prices are falling, and there's massive over-capacity in the Chinese steelmaking sector?

This is the elephant in the room for the China-will-save-us crowd, which includes (apparently) the entire board of the RBA.

carbonsink said...

Fascinating snippet from John Garnaut...

The Chinese Government's stimulus package has been so impressive that it helped stabilise the world economy, beginning with the commodities markets on which Australia depends. Professor Barry Naughton, at the University of California, San Diego, forecasts that the total stimulus package this year will be worth as much as 18-20 per cent of the country's GDP after including the explosion in bank credit.

But just 15 per cent of the extraordinary 7.4 trillion yuan of new loans in the first half of the year went to household consumers and businesses, down from a peak of nearly a third in 2007. State-owned companies secured the lion's share.

But, but ... wasn't the Chinese consumer supposed to replace the demand lost when western consumers closed their wallets?! Seems like most of the Chinese stimulus went into speculation on real estate, stocks and commodities, as well as unnecessary extra capacity at state-owned companies. Its a recipe for disaster, but all we get from financial journalists is cheerleading for China.

At least John Garnaut is thinking, but hey, what would he know about China.

carbonsink said...

Shanghai dropping like a stone. Down 5.17%

carbonsink said...

Shanghai down 6.74%. China lending bubble bursting?

carbonsink said...

Permabull Adam Carr has got the wobbles.

He now says net exports will come in barely positive and "following the inventories number yesterday this scares me and opens us up to a negative quarter of GDP".

Post a Comment