The RBA as was widely expected kept the rates on hold at the meeting last Tuesday. In our opinion, the inflation numbers for the June quarter due to be released on 27 July will be the main determinant for the RBA to move on rates. The RBA sort of dispelled the fears about a lower rate fueling further the increase in house prices. In the bank's view, the lending rules have tightened which reduced the risk to the housing sector. A weak inflation print will definitely see a rate cut in August.
S&P puts australia outlook on watch
Standard & Poors have issued a negative credit outlook to Australia in the wake of the Federal election outcome which was only confirmed last Saturday a week after the polls were held. The closeness of the parties with the Coalition just scraping through with a slender majority or a minority government with support of the independents mean that any significant budget reforms will be difficult. The negative outlook means that Australia's coveted AAA rating may be under pressure if budget measures are not tightened in the wake of fall in commodity prices (although they are up from where they were in December 2015), a weak demand from China and a weak outlook for global growth. The rating agency concerns stem from the fact that the large infrastructure debt in mining and in the LNG sector will struggle to make returns and the large debt to the housing sector in the wake of a housing "bubble" may have a catastrophic impact on the state of the economy.
MARKET DATA
| Australia Cash rate Australia 90 day bank bill Australia 10 y bond US 10y Govt bond AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P 500 Dow Jones Industrial Average Shanghai Composite Brent Oil (USD per BBL) Gold Spot (USD per oz) *Iron Ore 60% MBIOI-IR index USD/t (Updated Wednesday) | As at 8-Jul 1.75 1.97 1.88 1.37 0.7488 0.6755 75.17 5.0072 5,317 2,129 18,146 2,988 46.42 1366 48.61 | As at 1-Jul 1.75 1.95 1.97 1.44 0.7460 0.6733 76.73 4.9648 5,246 2,102 17,949 2,932 50.53 1345 46.72 |
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