A smattering of announcements, figures and reports yesterday continue to suggest strongly that a recession is gripping the economy in all but statistical fashion.
The recent rush to lower interest rates by the Reserve Bank could be over for next month at least, according to Macquarie Bank’s interest rate strategist Rory Robertson.
The RBA board meets next Tuesday.
Mr Robertson reckons the punters in the professional money market are being too optimistic.
"Having responded aggressively – and appropriately – to the post-Lehmans collapse in global growth, the RBA almost certainly is about to slow its easing process, both by cutting in steps smaller than 100bp and by leaving rates unchanged more often.
"The key question is what comes first: a smaller rate cut or a policy pause? I’m still thinking the latter," he wrote yesterday.
"In particular, the RBA Board’s policy choice at its 3-March meeting looks to boil down to a choice between a 50bp cut and a pause, its first in six meetings.
"At this stage, I still think nothing-done is more likely, whereas the market sees close to a 100% probability of a 50bp cut.
"Obviously much will depend on whether or not the US S&P 500 – and so global stock prices – breaks to new multi-year lows between now and then."
Shares did fall overnight on more worries about the health of US banks, while there’s a flood of data in Japan on Friday including the vital industrial production figures that could decide the RBA’s stance.
Helping might also be Friday night’s second estimate of US GDP for the December quarter.
Economists, such as the AMP’s Dr Shane Oliver, say there’s a strong chance the initial estimate of a contraction of 3.8%, will be revised to over 5%.
While that’s in the general ballpark when it comes to market thinking, the combination of poor figures and a poor reception for them from markets could force the central bank’s hands from the pause button.
Mr Robertson points out that Governor, Glenn Stevens gave us a big hint, as the Bank also did in last week’s minutes for the February board meeting.
"Governor Stevens in his Opening Statement on Friday highlighted the fact that the RBA’s extraordinarily large policy response to date has been pre-emptive.
"A very large easing of policy has been put in place, on the basis of the anticipated effects of the global downturn and more risk-averse behaviour at home.
"Those effects are yet to be seen in many of the figures, though they are being felt in businesses around the country. The effects of the policy adjustments are only beginning.
"So in evaluating the information we receive in the months ahead, our task will be to distinguish between that which confirms the anticipated trends to which we have already responded, and that which tells us something genuinely new about the prospects for demand and prices over the medium term."
Bank bill markets are pricing in a bigger cut it seems from media commentaries: perhaps 0.50% next Tuesday.
Mr Robertson said he believes the Reserve Bank will be dragged down towards 2% on the cash rate "but in the near-term it’s probably looking at a pause.
“The market is overpricing the probability of a 50 basis point cut at the March meeting.”
In fact there was another bit of info about the recession and the impact on the economy of the international slump in the extra detail from the Australian Bureau of Statistics on the January import data.
The ABS didn’t give the figures in terms of the balance of payments and said they would be released yesterday.
They were and there’s a very noticeable ‘recession’ influence in some of the movements in import values.
"Preliminary analysis shows that goods imports (debits) on a balance of payments basis decreased by $1,713m (8%) in seasonally adjusted terms between December 2008 and January 2009.
"Intermediate and other merchandise goods fell $1,059m (12%) with fuels and lubricants down $322m (15%), processed industrial supplies n.e.s. down $320m (16%) and iron and steel down $226m (33%).
"Capital goods fell $802m (15%). Consumption goods fell $182m (3%). Other goods rose $329m (30%) with non monetary gold up $181m (23%)," the ABS reported.
The fall in capital goods is a bit of a tip ahead of the important December quarter figures on new private capital spending, out tomorrow. They are expected to show a big fall in forward investment.
The RBA’s private credit figures for December showed a drop in business investment. January’s figures are out this Friday and should show another fall.
The fall in fuels and lubricants was due to the fall in oil and petrol prices; the fall in intermediate goods was another pointer to the recession’s impact on demand.
The small fall of 3% in consumption goods was a tiny signal that consumer spending is sluggish, but not terrible thanks to the December stimulus package sparking some restocking by retailers, many of whom are now in direct importing (Woolies, Coles etc, various rag trade companies, Country Road etc).
Macquarie Bank shares hit a five year low yesterday, Mirvac hit an all time low, as did fellow property operator, Goodman Group.
And finally, another pointer, this time from the government.
Prime Minister Rudd yesterday announced that an extra $300 million will be injected into the Job Network to give immediate employment assistance to workers who are retrenched.
This has been coming for a while, but it shows that the government is acknowledging that unemployment will be far more persistent for far longer than
