RBA Worries
On October 6th the RBA raised their cash rate by 25bps to 3.25% as we all know. If you go back and read the statement you will find it mighty interesting. This as the RBA stated that "the global economy is resuming growth". They did suggest it would be a modest recovery but since then equities have hit some potholes and more than one major global economic indicator (IFO, US Consumer Confidence...) has disappointed since.
Are they worried about Wed's CPI releases? In a word, No. On a quarterly basis consumer inflation has ticked higher and demands attention but this is not what the RBA is worried about.
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What is a bigger worry than inlfation in Australia is debt. See the chart below. The growth rates in debt continue to be at extremely high levels. At their last meeting the RBA stated "housing credit growth has been solid". Meaning that rates may have been too low as confidence remains high down-under.
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Have a look at the chart below. It shows that now more than ever are households in Australia more vulnerable to a downturn than probably ever before. The dotted line shows that housing interest rate payments remain very high as compared to disposable incomes. The bars show the coverage ratio of assets to disposable income to those payments. That coverage ratio has been declining all decade long despite the equity rally from 2003 to 2006 and the local impact of China's economy on Australian goods, commodities, and services.
In short the RBA has a lot more to consider than just inflation at their future meetings.
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The US awaits a few economic numbers on Wed, from Durables to New Home Prices. It was housing that triggered the initial prick of the credit bubble balloon. It will likely be housing that gets us going again. At what level do house prices become bargains in the US?
Right now the median price is off 25% to $195k from the 2007 high. A full 38% (1 minus fibonacci) would target $178k, or like all markets, do we go from excessive highs to ridiculous lows?
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