Ian Reynolds
The RBA Meeting On Tuesday Is Going To Be Interesting
Another month, another Reserve Bank meeting. But this one is going to be so interesting.
Remember last month's minutes with the surprising mentions of
- Monitoring the rate of disinflation internationally
- What to do with the many billions of A$ of Government debt purchased as part of the COVID response, and why they won't sell them as it "might complicate governments’ bond issuance and reduce the effectiveness of any future quantitative easing program."
- Lack of productivity in Australia and it's inflationary influence given the wages rises going through nationally.
Hang on ! Let's reverse back a bit.
The messaging so far has been that wage inflation has been benign, but now it's a problem ?
Selling the portfolio of Govt debt can be seen to be a tightening of monetary conditions and yes, doing QT might be misaligned with future QE, but what future QE? Have they given something away here? The many doomsayers will be thinking a global QE program to inflate the world out of unsustainable debt.
Monitoring the rate of disinflation internationally. He means the FED of course. Problem is the US Core PCE Price Index, the one key inflation metric that J. Pow and the FED look at, is not going down
Here some reasons why the Australian Cash Rate needs to be significantly higher.
- Australian supermarket food prices have increased by a new peak of nearly 10 per cent over the past 12 months, outpacing annual inflation as the cost of living continues to rise.
- House price have jumped since the RBA pause 2 meetings ago. And rents are going ballistic.
- Those wage rises and low productivity !
- Stubborn inflation in the US and globally
Having got it wrong in COVID, and got it wrong pausing it's now time to start guiding the country properly and a 50bps hike and some hawkish jawboning are needed right here, right now.
It's going to be interesting to see what happens to the currency. 50bps would probably tell us to close our long term AUD / USD short position.
In Case You Missed It
Non-Farm Payroll
El Arian / Timorris On FED Public Coherence [Twitter]
A $15.3 trillion local government debt crisis looms in China [AFR]
Taiwan Says It's In Talks On Being Brought Under US Nuclear Umbrella [Zerohedge]
Alexander Lukashenko offers 'nuclear weapons for everyone' joining Belarus-Russia union [ABC]
Immediate Debt Issuance Problem After Debt Ceiling Agreement [Twitter]
Chinese Developers Resorting To "Negative Down Payment" Practices [Xerohedge]
China Stock Gauge Slumps 20% From 2023 Peak as Pessimism Abounds [Bloomberg]
Voluntary Price Caps In UK [Twitter]
Australia
CPI Report [ABS]
The monthly CPI indicator annual movement rose 6.8% in April, up from 6.3% in March.
The annual movement for the monthly CPI excluding volatile items and holiday travel rose 6.5% in April, down from 6.9% in March. This series excludes Fruit and vegetables, Automotive fuel and Holiday travel and accommodation.
Annual trimmed mean rose 6.7% in the year to April.
PwC Tax Scandal: Scrutiny On Firm’s Australian Business Likely To Extend To UK And US Operations [Guardian]
Australia’s Iron Ore Boom is Fading [ABC]
House Price Growth Gathers Steam As Sydney Values Rise Nearly 2pc [AFR]
Mark McGowan’s Shock Exit Is Bad News For Anthony Albanese [AFR]
Quarterly personal insolvencies rose by 12.6% nationally year-on-year [AFSA]
Inflation Lifts Interest Rate Rise Bets As Lowe Warns Labour on Wages [AFR]
Reserve Bank of Australia governor Philip Lowe urged the Albanese government to lift productivity to avoid its push for bigger pay rises fuelling higher interest rates.
Wages going up without productivity gains translates into higher inflation and interest rates.
ABS’s Revamped Monthly Measure of Trimmed Mean Inflation [Linkedin]
‘Beggars belief’: Reserve Bank apologises for underpaying staff [AFR]
AUD / USD Trade Update
Short 0.7000
Short 0.7100
Short 0.6775
Stop 0.6825
Positive carry
The Mother of All Short Squeezes
Having hung onto the median Bollinger Band for a week, it dropped off and straight down to 0.6457 - the lower BB, making a hammer on the daily candle, which, doing what a hammer is meant to do, caused a sharp short squeeze back to the median BB, at 0.6625, but closing below it at 0.6611 which is just above the fib. Crazy stuff.
Stop still above 0.6800 and will leave it there until we make a new low below 0.6457.
The monthly close will give us a view of overall momentum.
This Week's Economic Indicators [London time]
