This is the first of many posts on the W3Treasury blog page in which I will be providing weekly insights and updates on both the Australian economy and any major economic news
Weak Australian Q3 CPI: Australia Q3 CPI data came in much lower than expected with headline inflation rising 0.5% lower than economists’ expectation of 0.7%. Underlying inflation which is the trimmed mean data also came in well below market expectation and came in at 0.3% to an annualised 2.1% just within the fringe of the RBA’s target band of 2-3%. With inflation definitely under control, the RBA will find supporting a rate cut favourably if not in November either in December or in February.
FOMC meeting: The US Federal reserve also met this week and while they have not raised US cash rates, the statement from the Bank removed the mentioning of the slowdown in global outlook having an impact on the US economy from last month’s statement. There is a clear indication of signalling a rate rise in the US soon. US bond rates tracked higher this week as a result.
ECB to expand its QE program: ECB announced that it will expand its Euro1.1 tn quantitative easing program in December and cut its deposit rate should the Euro zone recovery is affected by the slowdown in the emerging markets.
China’s GDP grew by 6.9% in Q3 still better than most economies of the world but showing a modest lowdown from previous quarter. The PBOC again cut its benchmark interest rate by 0.25% to 4.35% which surprised the market.
Australian Dollar weakened further due to prospects of a rate rise in the US and a rate cut expectation in Australia. AUD closed at just below US71 cents weaker than last week’s close of 72.5c. A rate cut tomorrow can have the potential to have the currency weaken further. However with prospects of a rate cut unlikely in November, the dollar is likely to hold ground.
Other News
James Lockyer, Development Director, Association of Corporate Treasurers UK made a presentation at the Macquarie Applied Finance Centre in Sydney this week. It was interesting to hear bullish predictions on China and in his view equally strong intention from the current leadership in China to invest and connect globally in a much more transparent way. James stated that finance and corporate treasury are rapidly evolving and extending to active value creation and risk management.
Markets at a glance
| Australia cash rate Australia 90 day bank bill Australia 10 y Bond rate US 10y Govt Bonds AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P500 Shanghai Composite Brent Oil (USD per bbl) Gold (USD per oz) Iron Ore (USD per tonne) | This week 2.00 2.11 2.61 2.14 0.7099 0.6526 86.12 4.4998 5239 2079 3412 49.56 1142.16 49.83 | Last Week 2.00 2.16 2.61 2.09 0.725 0.6467 87.47 4.6087 5352 2075 3383 47.99 1164.56 51.62 |
Outlook for this week
The Statement of Monetary Policy for Q4 is due on Friday. Couple of key US data will be relevant, the manufacturing PMI for October and the October unemployment data are due this week too.
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