Ben Robson – The Week of 25th February- 1st March 2019

It’s amazing what you can learn in a week! Reserve Bank minutes from Australia, the US and the ECB were all very interesting and can be found on their websites.

To me though, of more significance were the speeches by Reserve Bank of Australia Governor, Philip Lowe in his semi-annual testimony to Parliament and of Bank of Canada Governor, Stephen Poloz to a business lunch in Montreal.

In general, and along with the US, economic data in all three countries remains relatively strong, but in all three cases, there are factors that are affecting the thinking of central bankers. Lowe and Poloz gave us some strong clues as to what this is in Australia and Canada.

The fact that the Federal Reserve Bank of the US has put the brakes on its interest hiking cycle has given some relief to the Central Banks of both Australia and Canada who amongst other things have to contend with the fallout from massive speculation in their respective “big-city” property markets.

By avoiding like for like hikes with the US they can focus on other matters. Not that near-record low-interest rates will help much in a scenario where property prices are faltering. They might help speculators maintain mortgage payments but little else.

More worrying of course is the contagious effects that pass through to many businesses that flourish in the property and infrastructure sector and similarly to insurance companies that invest in Real Estate Investment Trusts. Similarly, there are likely to be effects on business confidence, consumer confidence and spending. CBA Governor Lowe chose to focus on wages and wage price inflation while maintaining his benevolent stance on accommodative interest rate policy to help Australian households.

He wishes that the minimum wage should rise by 3%. He also sees the potential for unemployment to fall to about 4.5%. BOC Governor Poloz’s speech was also dovish and was more focused on house prices, household indebtedness, and the 2018 fall in the oil price. BOC policy is also one of ‘wait and see!” Ironically, a strong employment report saw the Australian dollar weaken. The Canadian dollar strengthened despite a poor retail sales print.

This week it is the turn of Fed Chair Jerome Powell to enter the stage when he testifies to congress on economic and monetary policy on Tuesday.

American data Is strong and US markets are rallying since he signalled a pause in raising interest rates. The FOMC is looking to halt its balance sheet reduction process. Aside from (lack of) inflation concerns, Powell and co from the FOMC may start to wonder if they paused too early. Markets are fickle.

Let’s hope the Fed is not! Fourth quarter advanced GDP from the US is released on Thursday expected to have slowed to 2.4% from the 3.4% of the previous quarter. We await crucial employment data the week of 4th March.

For those interested in Central bankers’ views, The Bank of England’s Governor Carney will speak to a Parliamentary select committee on Tuesday.

Elsewhere, US Consumer confidence for February is released on Tuesday expected to read 124.1, Canadian Consumer Price Index Y/Y for January is released on Wednesday expected to fall to 1.4% from 2.0%. Swiss 4th quarter GDP is out on Thursday expected at 1.7% Y/Y. Eurozone CPI is out on Friday expected at 1.5% Y/Y for February and Canadian 4th quarter GDP is released later on Friday afternoon expected to read 1.4% Y/Y for December. US ISM manufacturing data is also out on Friday expected to read 56 for the month of February. Mr. Trump meets Mr. Kim in Vietnam on Wednesday and Thursday. US/China trade talks deadline is set for Friday.

Good luck and good trading! Ben Robson

 

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