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RBA
The RBA meets this week and is widely expected to hike by 25bps to 3.5%. There is little reason for them to surprise right now unless they've changed their minds on the direction of the global economy. Funny that its the global economy that matters and not as much the Australian economy.
Before we briefly touch on the global economy have a look at the chart below showing that consumer inflation has ticked higher the last few quarters and we'll find out on Monday if housing prices have ticked higher as well. For this chart house prices are median house price in Sydney, which have seen a nice little increase since 2002.
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As an aside to this meeting as the event in play will be the Statement and probably not the decision by the RBA, lets take a look at the BOJ through the years. The graph below shows their decisions since 1970. What you'll notice is the yo-yo movements in their interest rates. Anytime you use the phrase "yo-yo" with decision making it means that management decisions are poor. Luckily we're not seeing this elsewhere, or are we?
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Actually if you compare the cycles of the RBA to the BOJ since 1990 they seem to be on the same cycle. One country is a major exporter of commodities and the other is a major importer of commodities. Both are restrictive with their immigration policies and are major players in the Pacific Rim economic region. Both have major Group I races in November/December so these simple factors don't account for the correlation in rate management.
Why the high correlation then and will the RBA be able to sustain this "breakaway" stance of neutralizing rates while the other major central banks sit on the sidelines and wait for better times?
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Lastly, Monday is PMI day:
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Expected |
| Germany |
49.6 |
| EU |
49.3 |
| UK |
49.5 |
| US |
52.6 |
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October Reading |
| Chicago PMI |
54.2 |
| New Orders |
61.4 |
| Production |
63.9 |
Of course Chicago PMI surprised to the upside on Friday, if others follow the bulls may be back in charge again, especially with a decent NFP report on Friday. Then again aren't we expecting better figures than 49 out of the G7 leaders by now?
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