The gross flows data shows that the NSW lockdowns in July were damaging. The longer the lockdown, the greater the damage … so the worst is yet to come.
The lockdown situation is twice as bad as the RBA had in their August SOMP. Using Gov Lowe’s rule of thumb that consumption falls 15%, a Q3’21 GDP forecast of around -3% seems plausible (v. RBA -1% in the Q3 SOMP). The probability that the taper is dropped in Sep is rising.
The RBA has ‘looked through’ the delta-outbreak, and retained some of the upgrade that drove the July taper. A downgrade that drives easing is plausible, but it’ll take some time for the data to make the case
The RBA eschewed the signal-value of reversing the taper. My hunch is that they are worried about their market footprint and housing.
We can be pretty sure the RBA will downgrade and dump the taper. I think there’s a chance they say that YCC’s not dead, just frozen. Boosting QE to 6bn per week seems unlikely to me.
What can the RBA do? Faster QE will take RBA ownership of mid-curve ACGBs to 50%. They should consider buying Ultras and increasing the share of Semis. And rolling YCC to Nov’24.
RBA minutes confirm that the decision to taper to 4bn/wk was a close run thing & set up a reversal (due to COVID downgrades) in August.
The AFR’s John Kehoe reports that the RBA would not have tapered on 6 July if they’d foreseen the lockdowns. I think the RBA will reverse that decision on 3 August. It would be good strategy to remind the market that YCC’s not dead, it’s just frozen.
Another quarter of weak consumption and a decline of the ABS measure of job vacancies challenges the RBA’s conclusion that there’s no wealth effect form housing & their reliance on the lagging ABS measure of labour demand.
In this post I look at the federal election results in Qld. I first look at the two-party-preferred swing, and then at the swing in the Labor primary vote. The closer a seat is to a coal mine (particularly Adani) the lower the ALP primary vote and the larger the 2pp swing to the LNP.
The RBA cut 25bps to 1% on 2 July, delivering a rare back-to-back easing. They didn’t, however, drop the sort of hint that would suggest another cut in August.
I don’t think the RBA will cut their cash rate in July. It would be odd and out of character for a Governor and a Board that has emphasised that importance of the Bank being ‘a source of stability and confidence’ over the past few years.