Housing credit increased by 0.5 per cent over September (see the RBA Release for details), but this involved a further deceleration of mortgage debt…..
….The most recent figures—that prices fell 1.2% over the June to September 2011 quarter, and 2.2% from September 2010 to September 2011 (see the ABS Release for details)—confirm that mortgage debt acceleration, and not “population pressure” etc., is the key determinant of house prices.
RBA cuts the overnight cash rate by 25bps – first rate cut since April 2009
As we predicted the Reserve Bank Board decided to lower the cash rate by 25bps to 4.5%…..
Undoubtedly the most important development in the Governor’s statement is his observation that “inflation is likely to be consistent with the 2-3 per cent target in 2012 and 2013.” …… The fact that there is now confidence that inflation will remain within the target band for an extended period allows the Bank to deal with the prospects of an economy which is only showing moderate growth.
via Bill Evans, Westpac Chief Economist
New home sales declined in September with detached house sales posting their lowest monthly level since December 2000, said the Housing Industry Association, the voice of Australia’s residential building industry.
via New home sales clobbered – macrobusiness.com.au | macrobusiness.com.au.
In fact “normal” for the last half century has been an unsustainable growth in debt, which has finally reached an apogee from which it will fall. As it falls–by an unwillingness to lend by bankers and to borrow by businesses and households, by deliberate debt reductions, by default and bankruptcy–aggregate demand will be reduced well below aggregate supply. The economy will therefore falter–and only regular government stimuli will revive it.
This however will be a Zombie Capitalism: the private sector’s reductions in debt will counter the public sector’s attempts to stimulate the economy via debt-financed spending. Growth, if it occurs, will not be sufficiently high to prevent growing unemployment, and growth is likely to evaporate as soon as stimulus packages are removed.
The only sensible course is to reduce the debt levels. As Michael Hudson argues, a simple dynamic is now being played out: debts that cannot be repaid, won’t be repaid. The only thing we have to do is work out how that should occur.
via Debtwatch No 41, December 2009: 4 Years of Calling the GFC | Steve Keen’s Debtwatch.
Nothing seems to have changed since Steve Keen wrote this in December 2009. Almost two years later and any private sector deleveraging has been compensated by increases in public debt to finance stimulus spending. Greece’s “default” may be the first step in a long journey — and the jury is still out as to whether recapitalization of European banks (after their “haircut”) will be funded out of debt or new equity.
Nominal house prices are falling. Not collapsing, certainly. But falling very consistently, roughly 6% peak to trough. 8.5% in real terms. This has had a number of well documented effects including high savings rates, historically conservative levels of retail sales and stalled services sector investment.
…..Now, in August, the latest month for which we have data, coal and iron ore earned Australia $12 billion in export income. Assuming the price falls we have seen get no worse (or better), by the time new prices filter through the various contract systems, those same commodities will earn us roughly $9 billion in January next year (all things being equal with the currency).
via Why the RBA should cut rates – macrobusiness.com.au | macrobusiness.com.au.
The ASX 200 broke out above its descending trendline — warning that the down-trend was ending — but ran into selling pressure. Bearish divergence on 21-day Twiggs Money Flow confirms the tall shadow on Friday’s candle. Respect of support at 4100 would suggest a primary up-trend, while failure would re-test primary support at 3850.
* Target calculation: 4300 + ( 4300 – 3900 ) = 4700
Support levels are clearer on the weekly chart.
The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.
* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20
The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.
* Target calculation: 76 – ( 80 – 76 ) = 72
The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.
* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08
The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.
* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02
The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.
* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20
Just a reminder that the ASX is still in a bear market. Bullish divergence on 13-week Twiggs Money Flow indicates buying pressure on the All Ords and the index is testing the descending trendline. Breakout above 4400 would signal that a bottom has formed, while reversal below 4200 would warn of another test of primary support at 3900.
The ASX 200 weekly chart shows a similar picture, but 63-day Twiggs Momentum deep below zero warns that it may be some time before this bear (market) goes back into hibernation.
* Target calculation: 5600 – ( 6600 – 5600 ) = 5100
In the August Statement on Monetary Policy the Bank [RBA], relying on two recent prints of 0.9%qtr for underlying inflation, forecast that annual core inflation would print 3.25% in both 2011 and 2012. We are now confronted with the reality that annual core inflation for the year to September 2011 has printed 2.47% with a reasonable estimate that given the slowdown in the economy the fourth quarter will print around 0.5%qtr. That will allow the Bank to lower its inflation forecast for 2011 to 2½%yr with a similar outcome likely in 2012.
Given the Governor’s recent statement that an improving inflation environment allowed scope to ease policy it now seems almost certain that Westpac’s forecast which was made on July 15 — that we could expect a rate cut by the end of 2011 — will prove to be correct.
In fact given the Bank’s previous record of moving rates every November for the last five years and given that the case for a rate cut is indisputable the balance of probabilities has now moved to a November cut from our original call of December.
via Westpac Economics – first impressions
We can combine the main areas where housing has been stricken from the CPI – the removal of mortgage costs, quality adjustments to rent, and reduction in weight to home ownership costs – to see what difference it would make had the pre-1998 methodology been continued. The resulting MacroStats cost-of-living index is plotted below against the headline CPI.
….We can again see how this measure tracks the official CPI very closely until 1998. Since 1998 it is 0.73 percentage points higher on average (or 3.8%), and in the period 2001-2008, it averaged 1.3 percentage points higher (or 4.4%pa). That gives you some idea of how significant the 1998 methodological shift in the CPI was in disguising housing inflation and creating a feedback loop with lower monetary policy.
via How the CPI hid the housing bubble – On Line Opinion – 20/10/2011.
We need to be wary of bodies like the RBA lobbying to change the composition of the CPI. Performance measurement has to be independent in order to be effective.
