Investors watching Australia’s environmental and economic conditions may find certain catalysts that call for further monetary policy and fiscal easing to help protect the nation’s pace of growth.
Find out more in Asia-Pacific’s Week Ahead (Jan 13-17): Australia’s Bushfires Could Be Catalyst for RBA Rate Cut at IBKR Traders’ Insight. Sign up for our daily newsletter today!
Produced on January 10, 2020
Investors focused on the Australian economy are set to receive updates on new home sales and consumer confidence in the week ahead, as bushfires continue to ravage much of the nation. The devastating fires, which have been notably severe in New South Wales and Victoria, are widely expected to pose adverse impacts on consumer sentiment, spending and the broader pace of economic growth. Overall damage could result in a hit to the rate of Australia’s GDP in the first quarter, after which it may rebound if rebuilding efforts prove successful. In the near-term, the agriculture, tourism and retail sectors are most likely to suffer from the fall-out, spurring many in the market to anticipate further monetary policy stimulus from the Reserve Bank of Australia, as well as increased fiscal – and climate change -measures from the country’s government. Indeed, many strategists point to the bushfires as a likely catalyst to push the RBA towards further stimulus, at least until the central bank reaches a zero, or closer-to-zero, interest rate policy.
This may mean reducing the cash rate by another 50bps, effectively two additional rate cuts, before considering the potential for other accommodative measures. A lower cash rate will also most likely lead to a softer Australian dollar and lower government bond yields – which are already quite low. In fact, the yield on the Australian 10-year government note was last bid at around 1.25% ahead of the weekend.
Meanwhile, new home sales and Westpac’s consumer confidence numbers are due out in the latter part of the week. The HIA has generally attributed access to finance as a “significant barrier” to new home construction over the past year, with new home valuations not living-up to buyers’ expectations. In fact, conditions in Australia’s new housing construction sector have remained lackluster, despite the RBA’s cash rate cuts as well as the subsequent increase in the demand for home loans – all of which may be further evidence for an additional 25bp rate cut when the RBA next meets in February. Investors in the week ahead will also receive an updated gauge of the Westpac-Melbourne Institute Index of Consumer Sentiment, with the gauge having signaled a pessimistic tilt throughout the second half of 2019.
Westpac chief economist Bill Evans recently noted that the poor performance of the Index is “broadly consistent” with the September quarter’s “sharp” deterioration in consumer spending. Investors will likely be watching Australia’s environmental and economic conditions closely for any developments that may lead to further monetary policy or fiscal easing, as well as the consequences of these actions on its domestic and global financial markets. In the meantime, you can find more details on this topic in my full report, available now at IBKR Traders’ Insight. I’m Steven Levine with Interactive Brokers, asking you to enjoy the week ahead.
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