Yes, the Reserve Bank kept rates on hold, and yes, it’s not certain about the strength of the economy and yes it’s sitting on the sidelines and watching the impact of a series of rate cuts on the domestic economy, which is sort of good news.
But there’s investors seem to be ignoring the message from the data and the hints from Governor Glenn Stevens that the economy may be travelling a bit better than anyone thinks.
As we point out in another story, the chance of further rate cuts have all but vanished, unless there is a crisis offshore.
But as we saw from the surveys of Chinese manufacturing, our biggest export market is doing well at the moment and there are no signs of any looming worries, while the US and European economies are doing better.
But local investors again ignored the good economic news yesterday.
The ASX200 fell 23.4 points, or 0.4%, to 5256.1 and the All Ords fell 23.9 points, or half a per cent, to 5249.6.
That takes the fall this week to more than 63 points or over 1% and the fall since the start of November to more than 3.1%.
Gold stocks were sold off heavily after the new six month low reached overnight and yesterday in the New York gold price of around $US1221 an ounce. Newcrest dropped almost 7%.
As the separate story points out, the flow of economic data in the past week is pointing towards an economy a lot stronger than official comment suggests and that the value of the dollar seemingly has fallen sharply in the past month.
Perhaps that’s why investors are ignoring the flow of good economic data.
In his statement yesterday, Mr Stevens said, "The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy."
He and other senior RBA officials have been trying to talk down the dollar for several months now and finally seem to be breaking through and changing market perceptions.
And yet the Aussie dollar has fallen 4 USc since the November meeting of the RBA board and after a brief rally above 91 USc yesterday morning, fell back under that level, and then rebounded back past 91 US cents in offshore trading as stockmarkets in Europe and the US tanked.
RBA sits and watches economy, but dollar slides 5% in past month
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Our market will open sharply lower this morning with losses of close to 40 points projected on the ASX 200.
The fall in the past month is close to 5%.
If anything there now seems to be a growing acceptance in the market that the Aussie dollar’s value is too high for the current state of the economy and will ease under 90 USc by the end of the month and track back to its mid year low of 88.48 USc.
Retail sales are much stronger than it seemed in early November – sales are growing at an annual pace of close to 4.8% in the last three months – against the annual rate of 3.4% (all on a trend basis).
Building approvals remain solid and are slowly gathering strength – a jump above 17,000 approvals in a month early next year (from nearly 16,500 in October).
That would be an annual pace of close to 200,000. Private house construction needs to pick up a bit, but the construction of units and townhouses is growing strongly.
Exports are supporting much of the economy – especially iron ore, and lately there’s been a pick up in coal prices (and the lower dollar is starting to boost profits for miners).
The Chinese economy is continuing to grow moderately, as expected, and higher than expected iron ore prices are a small bonus.
In his statement, Mr Stevens said "The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households.
"There is also continuing evidence of a shift in savers’ behaviour in response to declining returns on low-risk assets. Housing and equity markets have strengthened further over recent months, trends which should in time be supportive of investment."
It’s all about the transition from mining investment (which may not be fading as quickly as previously thought).
And the private investment figures for the September quarter, released last week, suggest that non-mining investment is getting perkier in some sectors, such as manufacturing, retailing and other smaller sectors of the economy.
