RBA Minutes and China cut to 5Y LPR

This morning, China announced a 25 bps cut to the 5Y LPR while keeping the 1Y LPR unchanged and RBA released the minutes of the monetary policy meeting on 5 – 6 Feb 2024.

China - The consensus expectations were for a 10 bps cuts in the 5Y LPR and 5 bps cut in the 1Y LPR. The LPR cut in the longer tenor is indicative of China taking more constructive measures to revive the property market.

On the RBA minutes -

Encouraging progress towards inflation driven by goods inflation and lower energy and food prices while services inflation continues to be sticky. Due to disruptions in Red Sea, there has been an increase in shipping costs which are seen relatively subdued compared to the post pandemic. Labor market is coming into better balance which is helping ease services ex housing inflation. GDP growth in Australia’s major trading partners was expected to ease in 2024.

Domestically, inflation in Australia has moderated, but remains above target, with consumption growth subdued. Labour market conditions have eased, but wages growth remains robust. Financial conditions globally have eased, with market expectations for central bank policy rates fluctuating.

The committee considered raising the cash rate target by 25 basis points to address high inflation and ensure it returns to target within a reasonable timeframe. However, they ultimately decided to leave the cash rate unchanged, citing progress towards meeting inflation objectives and uncertainties in the economic outlook. They emphasized the need for data-driven monetary policy decisions and resolved to continue monitoring economic trends closely.

Markets are currently pricing in cumulative 40 bps of cuts into 2024 with first full cut of 25 bps priced into the Sep policy.

China and Australia Equity indices are trading in the red suggesting a lack of exuberance to rate cuts announced by China and tighter monetary policy in Australia.

Comments

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“Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.” ~ Howard Marks Bonds continued to rally this week with yields on US2s printing a high and low range of 3.71% - 3.55% to close the week at 3.584% and US10s printing a high and low range of 3.76% - 3.6050% to close the week at 3.655%. I highlighted in my blogpost on Aug 31, the triangle breakout target at 15.50 bps on US2s10s. We dipped to -0.004% on the CPI release and closed the week at 0.0710%. On Crude Oil prices we dipped to lows of $ 68.71 but closed the week higher at $ 72.09. ECB annou...

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As Howard Marks says The most important thing is "Awareness of the pendulum'. The mood swings of the market resemble the movement of a pendulum. Although the mid point of the arc best describes the location of the pendulum "on average", it actually spends very little of its time there. In fact, it is the movement towards an extreme itself that supplies the energy for the swing back. Investment markets follow a pendulum like swing - b/w euphoria and depression, between celebrating positive developments and obsessing over negative ones and thus between over priced and underpriced. While we may not know what the futures holds but me must have a fair sense of where we are headed. I hope this blog has helped you navigate the course of the markets by identifying these pendulum type swings and through the analysis, has helped you get a sense of how the data is evolving. The Economic calendar was heavy with Top Tier Data. BoJ raised the overnight call rate by 15 bps to 2...

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One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all... Do not live half a life and do not die a half death If you accept, then express it bluntly, Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution, Do not believe half truths, Do not dream half a dream, Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy. The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom. In the last blog piece...

Shroedinger's Cat ~ Preparation is the Key to play markets || US Politics || Macro Musings

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