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| ANZ prediction |
Manufacturing in China hit a five-month high in October according to the usually-reliable HSBC purchasing managers’ index. The index stood at a preliminary 51.1 in October, up from 49.9 in September and the first time it has gone above the neutral level of 50 since June.
The final PMI reading for October will be released as Australia’s Reserve Bank board meets to set internet rates on Melbourne Cup Tuesday, November 1.
HSBC economist Qu Hongbin said the news suggested China’s economy would escape a hard landing, despite slowing export growth and tighter credit conditions.
The turnaround was led by export orders, most likely to the United States after the settlement of its debt ceiling crisis.
“It gave the currency a kick along, taking it past 104 US cents,” said CMC Markets dealer Tim Waterer. The Aussie dollar closed up one and a half cents.
The S&P/ASX200 index climbed 113.1 points, or 2.73 per cent, to 4,255 points. The All Ordinaries index climbed 110.2 points to 4,313.6.
Markets were also optimistic about a settlement of the European debt crisis this week with eurozone leaders scheduling another meeting for Wednesday. “We haven’t got the result at this stage, but it appears from the rhetoric they are progressing in the right direction,’’ said Mr Waterer.
At home the odds of a Melbourne Cup Day interest rate cut advanced with the release of a benign-looking producer price index.
Traditionally released two days ahead of the consumer price index, the index showed prices rising at a quarterly pace of 0.6 per cent and an annual rate of 2.7 per cent...
The results are well down on the June quarter readings of 0.8 per cent and 4.3 per cent, and suggest producer prices will add little to consumer inflation.
But the relationship between the two indexes has become loose in recent years as consumer prices have increasingly come to depend on wages and margins as well as the price of inputs.
Domestic producer prices climbed 0.7 per cent in the quarter and imported prices were flat after falling 19 per cent since the first quarter of 2009 as the Australian dollar rose.
House construction costs, heavily represented in the consumer index, fell 0.2 per cent in the September Quarter. Utility charges jumped 8.2 per cent as annual increases kicked in. Encouragingly the increase was below the 8.9 per cent recorded in the 2010 September quarter.
“We have raised out headline CPI forecast to 0.7 per cent, but cut our underlying inflation forecast to 0.6 per cent,” said RBS economist Kieran Davies. “A 0.6 per cent result would probably see the Reserve Bank cut.”
The Bank believes interest rate settings are mildly restrictive and will return them to a more neutral setting if Wednesday’s CPI result allows it point to continuing low inflation.
Published in today's SMH and Age
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10 comments:
Has to be below 0.6 percent for a cut I reckon ... at least while Battellino's on the board. Heck, we'd need outright deflation and 7 percent unemployment before Boom Boom Battellino would change his mind.
My money is on 0.6% CPI and rates on hold in Nov. If its 0.7% or above then forget rate cuts until 2012. Only if its 0.5% or below will they cut ... and Chris Joye's head will explode.
Note: After a brief respite in September this resumption in optimism in "risk assets" is delivering a death blow to non-mining tradeable goods sector. Will the RBA take this into consideration? Of course not, its all part of the plan!
It's a wonder people don't get entirely sick of the following:
1.
2. Post-announcement rationalize why what you said in (1) is correct.
Should read:
1. [insert nuanced argument as to what the RBA will do]
Trimmed mean 0.3 percent. Headline 0.6 percent.
Chris Joye's head just exploded.
but i thought the cost of living was rising uncontrollably?
And wages.
those evil unions-getting more money(and better conditions) for their members
Out of control wage-price spiral, that's all heard from the bullhawks in the first half of 2011. Remember the hysterics when the Q2 CPI was released?
And would you believe Chris Joye is still not wrong. Q2 was revised up and Q3 is a rogue (!) Not sure why inflation data from April is relevant in November, but there you go!
what was very surprising about today's release was another big revision to Q2. In short, the average of the trimmed mean and weighted median inflation estimates was revised back up from 0.6% to an unacceptable 0.8%. Recall this followed huge media, economist and RBA hoopla about the downward revisions in Q2 from +0.9% to +0.6%. Now we are at +0.8%! And that follows a revised 0.8% core inflation estimate in Q1. Ordinarily, this means rate hikes, and would totally eliminate cuts. One curiosity is that this will now beg the question as to whether, in fact, it is the Q3 number that is anomalous/rogue
Chris is clutching at straws now.
Not that he needs to worry. With Battellino and Stevens at the helm, they'll stay on hold unless the world ends ... which it might.
I dont think a cut is a certainty Pete, I really dont.
Battellino, Stevens and the RBA staff economists are rusted-on inflation hawks and very bullish about the whole China/resources/mining investment story.
Its a huge about-face for Battellino particularly to cut rates. Lots of egg on face.
Lorax all these people care about is making the right decisions, really.
Notions of egg on face don't matter when you're at that level, and shouldn't matter at any level.
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