Originally published by Rivkin Securities
Tuesday was fairly directionless for markets with little key data to guide investors. The focus domestically was on the RBA’s monetary policy decision where interest rates were left on hold at the record low +1.5% as expected. The accompanying statement by Governor Philip Lowe seemed to dampen any expectations that the RBA would sooner raise rates than lower them. The general consensus is that the RBA remains between a rock and a hard place, the rock being bubbling housing prices in east coast major cities and the hard place being below target inflation and soft wage growth.
The RBA is continuing to increase the focus on macro prudential measures to address the housing market and what is considered high levels of indebtedness by households. This includes increased scrutiny from the Australian Prudential (LON:PRU) Regulatory Authority (APRA) to ensure strong lending standard by the bank, with a recent focus on the suitability interest only loans.
The statement also highlighted that inflation remains quite low, although the headline rate is expected to rise above 2% during 2017. The core measure however is expected to rise more gradually as labour costs remain subdued. Still the outlook certainly is not negative, the economy continues to adjust away from mining investment, with higher commodity prices providing support for our national income and overall the global economic outlook continues to improve. Until we see sustained improvement in wages and inflation, the RBA will likely keep rates on hold in the coming months.
In reaction the Australian dollar fell -0.50% against the US dollar as bond yields declined, with both the 2-Year and 10-Year yields falling -3 and -6.5 basis points respectively. The S&P/ASX 200 index finished trading -0.27% however we look set for a decisively stronger open this morning with ASX SPI200 futures up +27 points in overnight trade.
Overnight European and US equity markets edged higher, with the Euro STOXX 600 climbing +0.20%, as did the DAX +0.21%, S&P 500 +0.06% and Nasdaq 100 +0.07%. The US Dollar Index finished flat, down just -0.02% after the U.S. trade deficit (MoM Feb) narrowed to –US$43.6 from –US$48.2 billion in January, although this decrease in seen predominantly as a reversal of the increase from January relating to orders ahead of the Chinese New Year.
Data releases:
· Eurozone Services & Composite PMI (MoM Mar) 6:00pm AEDT
· UK Services & Composite PMI (MoM Mar) 6:30pm AEDT
· US ADP Employment (Mom Mar) 10:15pm AEDT
· US ISM Services Composite (MoM Mar) 12:00am AEDT
· US Crude Oil Inventories (Mar 31) 12:30am AEDT
· US FOMC Minutes (Mar 15th meeting) 4:00am AEDT