Originally published by Rivkin Securities
Global markets edged lower on Tuesday as investors took some risk off the table ahead of what has been described as “Super Thursday”, whereby investors will assess an ECB policy meeting where expectations are the central bank will drop references to an easing bias, former FBI Director James Comey will testify over allegations of Russian interference into the 2016 Presidential campaign along with the UK election. Unsurprisingly, traditional safe-haven assets edged higher overnight, spot gold rose +1.10% as did the Japanese yen +0.95% and two-year bond yields decreased with the two-year US treasury yield down -1 basis point as did the UK two-year yield, down -1.3 basis points. Global equities were lower, with the S&P 500 down -0.28%, and the Euro STOXX 600 finishing -0.67% while locally the S&P/ASX 200 index closed -1.52% lower. ASX futures are pointing to a slightly stronger open this morning up +15 points in overnight trading although investors should not expect too much action globally ahead of Thursday’s events.
With the Reserve Bank of Australia releasing its interest rate decision yesterday, the below table details central bank policy rates for selected countries.
The above table provides information about central bank policy for a selection of key developed and developing markets. Current central bank policy rates are compared to the current growth in the consumer price index to get an indication of real interest rates in the economy. Where available, a forecast of the next interest rate decision is provided to give an indication as to whether the central bank is in an easing, neutral or tightening cycle.
Yesterday, the Reserve Bank of Australia (RBA) decided to keep interest rates on hold in Australia at 1.5% for the time being. It cautioned not to panic about the recent weakness in the GDP numbers and is confident that economic growth will be back to 3% or more in the medium term.
Australia’s nominal interest rates are currently at the upper end of the large developed economies although Brazil, Russia, China and Mexico have both higher real and nominal rates than Australia. The Federal Reserve is set to raise rates to 1.00% at its next meeting on June 15.
The current data shows that real rates are actually negative in some of the largest developed markets and nominal rates are negative in Japan and the Eurozone. Real rates in the UK are the lowest with a negative real rate of interest of -2.45%. Conversely, Brazil have a high real rate of interest of 6.17%. Real interest rates in the US are currently lower than in Australia although this is trending upwards as the Federal Reserve continues its tightening cycle. Real rates in Australia are at risk of falling further if the continued weak economic data leads to the Reserve Bank of Australia cutting rates further.
Data releases:
· Australian GDP Q1 11:30am AEDT