Westpac’s Bill Evans predicts that the RBA will cut the cash rate to as low as 0.75%.
Cutting rates, especially from this low a base, is not a bullish sign. It will warn of RBA concern at the pace that the economy is contracting. Central banks are data-driven. They do not anticipate recessions, they react to them.
My own thoughts:
- The RBA needs to keep its powder dry. We are likely to face a severe contraction when China goes into recession because of the trade war.
- Household debt is still dangerously high and is impacting on economic growth.
- The bubble in housing prices threatens our already under-capitalized banks.
- Tax cuts will provide some stimulus but it’s time for Scott Morrison to step up to the plate and spend big on infrastructure.
- Infrastructure spending must be directed towards productive assets, else you end up with fiscal debt and no assets/income to service it.
- Australia needs to abandon its houses and holes strategy and build a multi-faceted economy with a strong emphasis on technology and services.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.