I appeared on Channel News Asia again this morning at 6:20am SGT, via Skype. My questions and my responses in the form of brief notes are below:
Q1. Today’s release of central bank policy meeting minutes, do you see prospect of a rate cut in November?
It is certainly possible and talk continues in the market about the possibility of the RBA moving again. However as always, we see central banks take a long term view on the economy and I don’t think they will be in too much of a rush to lower rates again.
Earlier this month when the RBA held rates again, the statement mentioned that moderate expansion in the economy continues. It also mentioned that whilst growth had been below longer-term averages, they are also seeing stronger growth of employment and a steady rate of unemployment over the past year.
Q2. Speaking of Central Banks, are we going to see the Fed raise rates this year?
It really has been the theme throughout 2015 and that is the expectation of when the Fed will raise rates for the first time in over 9 years. Earlier this year, June was a likely candidate and after June passed, it became September as the month most likely.
I think every month comes along and traders play the ‘will they or won’t they’ game. The Fed has been second guessed for the last few months on failing to deliver the much-awaited policy move.
I don’t see it happening this year. They are too concerned about things outside their borders and beyond their control, like Europe and China.
Statements from Fed members remain optimistic, however the vote count in the meeting minutes has not shown a rate hike is close to happening. Furthermore the Fed has shifted from providing forward guidance to almost no guidance at all, which is resulting in increased speculation and market volatility.
Q3. Are you cautious on the overall outlook for GDP growth in Australia?
I think cautious is the right word. It certainly isn’t abundant optimism.
Only last week the Deputy Governor of the RBA Philip Lowe suggested that the probability of recession in Australia is low, however a period of contraction in the economy can’t be ruled out.
Despite 24 years of growth, Lowe suggested that “The idea that the Australian economy can just keep growing without having short periods of contraction is a mistake.”
What is probably a more realistic perspective is that if Australia does go into recession and the 24 year streaks ends, it is very short lived.
Mr Lowe stated that the RBA maintain an upbeat view of the economy. “We think the economy’s on a gradually improving track; that the unemployment has stabilised; that growth has been 2% to 2.5% for a while, but will gradually pick up,” he said.
Q4. What are we expecting from the Australian market when it opens shortly?
I don’t think we should expect a lot. It was a little volatile yesterday but then closed flat and with an equally flat session in the US overnight, I don’t see the ASX200 moving too much today. Even the SPI is indicating next to no movement.
The ASX200 index is presently stuck between two key levels of 5000 and 5500. It has done well of late to find support at the key 5000 level which has seen it move to a one month high however now the congestion around another key level of 5500 is starting to be felt. It has run into some resistance at 5300 and there is likely to be more resistance above should the index be able to rally higher back to two month highs.
Q5. The Australian dollar surged yesterday after China’s GDP data came in slightly better-than-expected. Is the rally going to last?
I am not so sure. I think there remains a fair amount of bearishness with the Australian dollar. Similar to the ASX200 receiving support at 5000, the A$ has done well to enjoy solid support from the 0.70 level which has seen it move back to close to 0.74.
It reacted well to China GDP yesterday however it didn’t last long as it returned to 0.7250. There are of course ongoing concerns about China’s growth.
Unless there is more good news in the next month or so, the A$ could easily drift back down to the key 0.70 level again – then talk about the RBA cutting again enters the discussion and places more downward pressure on the currency.