No rate cut from the Reserve Bank and the closing down of the US government should have made for a tough day everywhere yesterday, but most markets ended up higher, instead of lower.
They seemed to have fallen on Monday and then rebounded on the actual fact of the US shutdown.
The RBA move came on a day when the monthly survey of manufacturing from AIG and the Commonwealth Bank showed a big jump into the expansion phase for the first time in more than two years, and retail sales perked up with a seasonally adjusted gain of 0.4%.
So there was clearly no reason for a rate cut, especially given all the heat and noise about property prices, bubbles and the like.
We will have to wait a fortnight for the release of the minutes of yesterday’s meeting to see the extent of the discussion on issues such as the dollar, the economy and the strength of the property prices and home lending.
But there are rising levels of activity in some parts of the housing sector, especially Sydney and Melbourne, but certainly not national, as RP Data confirmed yesterday.
Prices nationally rose 1.6% in September and 3.7% over the year, but the rises in Sydney and Melbourne were much stronger
In fact it was a mixed reading and certainly gave no indication of a boom or a sustained national surge in prices.
Sydney’s home values rose 2.5% last month to be up 5.2% in the three months to September. Melbourne’s prices were up 2.4% in September and 5% in the year. But prices fell in Canberra, Hobart and Darwin last month and were weak to sluggish in Brisbane (up 1.1% in the past year) and Perth where they rose 1.3% in the quarter.
The manufacturing survey showed a 3 percentage point rise in September to 51.7, the first time the sector’s gauge has been in positive, expansion territory since June 2011. The weaker dollar helped.
A 6.4% rise in department sales in August helped lift sales, but that was after a 7.9% slide in July, when there was an 0.1% gain in overall sales, seasonally adjusted. But household goods fell 0.6% in August after July’s 1.8% rise. And cafes, restaurants and takeaway food sales also improved, rising 0.4%. Clothing, footwear and personal accessories was up 0.3% and food retailing by 0.1%.
Overall, the rise was nothing to get excited about and economists said the mix confirmed the patchy nature of retailing.
So given the data flow yesterday and since the last RBA board meeting, there was no real reason to expect a rate cut and the RBA remains in a wait and see mode.
No RBA rate cut yesterday, none ahead
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"The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA Governor Glenn Stevens said in his usual end of meeting statement that was unchanged from the one issued after the August meeting.
That was despite some desperates in the markets and among private economists claiming the bank might want to insert signs of a bias towards easing in yesterday’s statement, that was clearly absent.
Barring a disaster offshore, say in the US if the current government shutdown morphs into the debt ceiling brawl mid month and sets off a financial shiver or two, the RBA will not be cutting rates again. They are at record lows of 2.5% already.
The key parts of yesterday’s RBA Governor’s statement read:
"The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values. The full effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has remained relatively subdued to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in savers’ behaviour in response to declining returns on low-risk assets.
"The Australian dollar rose recently, but is still about 10 per cent below its level in April. A lower level of the currency than seen at present would assist in rebalancing growth in the economy.
"At today’s meeting, the Board judged that the setting of monetary policy remained appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target."
Note the reference to the 10% fall in the dollar – the August statement had the fall at 15%, and the gains overnight have cut it back further.
