Wednesday, January 17, 2007

Telltale economics

“THE Australian share market is expected to open higher after a strong lead from Wall Street, and as economists await further signals for the direction of interest rates.” Wall Street tipped to usher in a buoyant Aussie bourse

The big news is that the financial world is getting its rocks off on the Aussie dollar. Great news for the traders, but anus-puckering news for the Howard Government.

The odds of another interest rate rise in Australia this year are firming amid concern over stubborn inflation and wage pressures, creating a headache for the Federal Government as the election approaches.

It would be the fifth since the Coalition, led by John Howard, was re-elected in 2004 on a pledge of keeping interest rates low.

Some reports say inflation remained stubbornly high, making the case for another interest rate rise compelling. Inflation is not only high but accelerating, strengthening the case for the Reserve Bank (RBA) to raise interest rates next month for the fourth time in a year.

Prices increased by 0.3 per cent last month. The rise was the third consecutive month of accelerating inflation and came despite the RBA's 0.25 per cent increase in official interest rates in November to 6.25 per cent. Inflation was 3.8 per cent last year, the survey found.

January 5, futures markets had priced a 28 per cent chance of an interest rate rise into the 30-day bank bill futures for March delivery. That market had yesterday priced in a better than 50 per cent chance.

So it’s a case of good news and bad news. The good news is not just for those market players who look to make a killing, Australian’s who have had enough of Howard’s Liberal/National government should be delighted. The government’s continuing economic woes are a guilt edged guarantee of electoral failure.

So rather than rush out for a mortgage on a bargain basement property, and risk increasing interest rates, I might just go and pour myself another beer.


Praguetwin said...

A fixed mortage would be a good bet in a rising interest rate environment.

One thing I don't understand is how the Howard government can promise low interest. Isn't the RBA independent like the U.S?

I wonder how many people are profiting from carry trading against the yen?

Cartledge said...

RBE Fixed rate is all the rage just now. But I fell into that trap once, I'll stick with the beer thanks.
The second point - all I can say is Howard is a dildo.
On the third, I don't follow the trade that far myself. I leave the big picture to you and tr and watch the effects on the ground. But you sound right to me.

Kvatch said...

So rather than rush out for a mortgage on a bargain basement property, and risk increasing interest rates, I might just go and pour myself another beer.

You'd think that with our rates going up as well the "...pour myself another beer," sentiment would win out, but no many regions are still showing surprising strength in the housing market. Must be our lousy beer.

Cartledge said...

kvatch, blockheads are universal. Odd thing here is we've been warned about the property bubble for the past few years. Now it is like one of those old tires that pops out in odd places, but the drive to play in the market is powerful.
I expect they bet their shirt on property then have the beer. Maybe it deadens the nerve endings while they watch the numbers play out.

Praguetwin said...

Beer is right. I'm not RBE :)

I don't watch AUD that closely but I checked it out in passing yesterday. Seems the traders are indeed going long on it and it's strenth against the kiwi is furthing the gains. Another big factor is issuance. Two big companies just switch several hundred million to AUD from USD yesterday (I think it was about billion total if I remember right).

Interesting to see what happens over the next week or so.

Cartledge said...

Mea Culpa PT. There was just a touch of a passable shiraz mixed in with the beer. Just doing my bit for water rationing.
So governments. per se, only have a limited grip on the control stick. It will be intersting.

Praguetwin said...

Checked out the AUD and found that people are holding some big carry trades against the Yen, so if the BoJ ever startes moving, look for people to liquidate those trades, which will soften the AUD. Also, what a run over the last 5 years against the dollar! Wow!

It looks pretty played out to me. I would expect it to soften eventually, or at least in the near term until those rate hikes become reality.

Cartledge said...

The rate hikes are on - at least 3 predicted. Now we test the change of government hypothesis.