Low US unemployment, strong jobs growth over the last 3 months, inflation growth around 2.1% and Governor Yellen’s indication of a US rate hike in recent media statements point to an upward movement in the cash rate when the Fed meets this week. We expect a rate rise of 25 basis points.
OIL PRICE FALLS BELOW USD 40
Price of oil has fallen to its lowest level since the GFC and broke through the USD 40 a barrel. With OPEC led by Saudi Arabia continuing its market share strategy and not support oil prices, crude prices have fallen further and settled in at around USD 35. We should expect prices at the pump to fall as the holiday season approaches.
HOUSE PRICE GROWTH MODERATES
House prices are set for a period of moderate growth. There have been some decline in prices where housing is related to the underlying industry for example, at mining sites etc but overall there is no evidence of a decline or even stagnation in prices across Australia. Cheap housing loan is mainly the reason why house prices are still growing and we expect that trend to continue for at least some time.
AUSTRALIAN DOLLAR COMES UNDER PRESSURE
Weak Chinese growth numbers, fall in commodity prices and the imminent US Fed rate hike have contributed to fall in the value of the Dollar as analysts have started querying whether it is overvalued. As reported earlier via this blog, Aussie received support from M&A activities; however investors are not willing to invest in Aussie bonds due mostly to slower growth outlook in China. Needless to say, it appears that the volatile journey of the Aussie will continue into the New Year.
MARKET UPDATE
| Australia Cash rate Australia 90 d bank bill (mid) Australia 10 y bond US 10y Govt bond AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P 500 Dow Jones Shanghai Composite Brent Crude(USD per BBL) Gold Spot (USD per oz) | 11 DEC 2015 2.00 2.3450 2.85 2.15 0.7246 0.6627 88.44 4.6741 4954 2012 17265 3441 37.85 1073 | 4 DEC 2015 2.00 2.3033 2.937 2.2693 0.7322 0.6693 89.74 4.6837 5151 2049 17477 3584 42.80 1084 |
outlook for this week
The Treasurer, Scott Morrison will reveal the extent of the budget deficit in the Mid-year economic and fiscal outlook later this week. It is widely expected that the budget deficit will rise and therefore there will be announcements of budget cuts to offset that increase due to continuation of the decline in commodity prices and worsening terms of trade. Mr Morrison said, “The government will continue to restore the budget by controlling expenditure and supporting policies that grow the economy. The budget will not be restored by increasing the overall tax burden on Australians."
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