13 Dec 2024
Economic news complicates central bank rate path
Markets
- Local and global equity markets were largely weaker this week, particularly the US and Australia, where resilient economic data might present a hurdle for central bank rate cuts.
- The Australian banking regulator has confirmed the phase-out of AT1 (retail hybrid securities) as eligible bank capital over an eight-year timeframe. We are the first country to remove banks’ use of these securities. Banks will be allowed to replace this capital with other instruments.
- In local stock news, APA Group shares rose after the Australian Energy regulator confirmed the pipeline operator’s South West Queensland Pipeline would not be subject to full price regulation. The decision will give APA confidence to invest further to meet gas demand on the East Coast.
- ANZ bank announced Nuno Matos will become their next CEO, succeeding Shayne Elliot who is retiring after nine years in the role. Matos, a former HSBC banker, will take over the job in July 2025.
- A Chinese anti-trust (competition) investigation into Nvidia spooked technology investors with local technology stocks falling sharply on the news.
- Local gold stocks rose this week led by higher gold prices with news the Chinese central bank announced it would resume buying after a six-month hiatus.
- The Australian dollar continued to weaken against the US dollar. A combination of the Aussie dollar weakening on the effect of US tariffs on the Chinese economy and the US dollar rising on risks the Fed may not be able to deliver on rate cuts, whilst tariffs also support the US dollar.
Economics
- The RBA left the cash rate unchanged at 4.35% at its last meeting of the year, as expected. The key item in their statement was the shift to a more dovish tone (i.e. rates lower) as they appeared to remove the last remaining chance of a rate hike. The change in statement also gives them the option of cutting rates early in 2025.
- The Australian labour force survey showed a strong 35,600 jobs added in November, following a 12,100 increase in October. November saw a large increase in full-time employment. The participation rate fell to 67% which meant the unemployment rate dipped back down to 3.9% from 4.1%, potentially complicating the RBA’s next move.
- Australian public sector job growth is far outpacing private sector growth. Public admin & safety jobs grew 10.5% over the twelve months through September, healthcare & social assistance jobs rose by 11.4%, and admin & support services jobs increased by 7.6%.
- Almost forty percent of Australian households are under financial stress according to an Equifax survey. The survey also showed half of Australians had to cut back on discretionary spending and half said their main priority for the coming year will be paying down debt or no longer living pay cheque to pay cheque.
- The November NAB business survey showed both business confidence and conditions fell sharply to below long-term averages. Conditions are now at their lowest since August 2020.
- Australian auction clearance rates dropped to a fresh one-year low according to CoreLogic data. Sydney’s has fallen the most more recently, almost catching up to Melbourne’s underperforming housing market.
- The US economy created 227,000 jobs in November whilst the unemployment rate ticked up to 4.2% as the participation rate fell. The strength of the November number does create a small risk the Fed delays their next rate cut, but this is unlikely with 0.25% cut expected.
- The US consumer price index rose 0.3% in November, in line with expectations, with the annual growth rate lifted from 2.6% to 2.7%. Core inflation also rose 0.3% in November, with the all-important annual core now at 3.3%.
- A key US consumer sentiment index rose strongly in November, coming in above expectations.
- A key US small business optimism index rose strongly in November, coming in well ahead of expectations. Small business animal spirits are back.
- US consumer inflation expectations for the year ahead rose from 2.9% in October to 3% in November, in line with expectations.
- The European central bank cut its key policy rates by 0.25% with the post-meeting statement taken as dovish, indicating more rate cuts are potentially on the way.
- The Reserve Bank of India kept their cash rate unchanged at 6.5%, largely as expected, though there are some calling for a cut following disappointing economic growth figures recently. They lowered their 2025 FY growth projection to 6.6% and their inflation forecast to 4.5%.
- Data showed China’s exports slowed sharply and imports unexpectedly shrank in November, putting further pressure on the economy. Though export growth did extend into an eighth straight month as exporters rushed to frontload goods to the US before tariffs kick in.
- China said it would take more action to boost its struggling economy. A report said they will implement a more proactive fiscal policy and a moderately looser monetary policy next year.
Politics
- In an interesting move, US President-elect Donald Trump invited Xi Jinping to attend his inauguration. The attendance of a foreign head of state would be unprecedented. Trump also picked David Perdue as US ambassador to China, likely seen as a less aggressive pick.
- French President Macron said he will appoint a new prime minister in the coming days whose top priority will be getting a 2025 budget adopted by parliament.
- South Korean prosecutors opened a criminal investigation into President Yoon over his martial law declaration. Yoon survived an impeachment attempt due to lack of quorum on the vote, but it appears stepping down won’t be enough.
- Israel continued to pound Syrian army bases in strikes it says aim to keep weapons from falling into hostile hands. An interesting one following the regime change that has swiftly played out with long-standing Syrian leader Al-Assad fleeing and “rebels” taking over the country.
- Prime Minister Anthony Albanese is offering families earning up to $530,000 three free days of childcare per week at a cost of $427.6 million over five years. Albanese also proposed overhauling the activity test to be eligible for subsidies, which the Productivity Commission estimated would cost around $2 billion per year if removed completely.
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