The continuing slide in the Chinese economy and stockmarkets overtook yesterday’s non-decision on interest rates from the Reserve Bank.
The latest surveys of the health of Chinese manufacturing yesterday showed a definite worsening in the pace of activity last month, and our market sold off heavily, even after the RBA decision at 2.30pm and ended down well over 2% or more than 110 points to start the first day of Spring on a decisive down note.
Other markets across Asia also fell, especially Tokyo which was down close to 4%. Hong Kong lost 0.8% and Shanghai fell 1.5%, after being down more than 2%.
The dollar traded around 71.70 US cents.
That was after weak current account data for June raised the prospects of a slowing in GDP in the national accounts due out later this morning, with most economists seeing quarter on quarter growth slowing from the 0.9% of the first quarter (which could be revised) to as low as 0.2% to 0.4%.
And the annual rate could dip from 2.3% to as low as 2% or less.
However building approvals for July were up more than 4%, thanks to a rebound in approvals of non-private dwellings (apartments etc) which offset a slowing in the rate of approvals for private home building.
Approvals to build houses fell by 3% from June, while approvals for apartments and other dwellings rose by 6.1%. In the year to July, and approvals were up more than 13% from the 10% rise in the year to June.
That tells us the residential construction sector, the one area of activity that is booming and holding the economy together as it transitions from the resources boom, remains in solid shape.
House price data out yesterday showed a slowing in the rate of growth in prices, while our manufacturing sector saw another rise in the pace of activity and it is now growing at the strongest rate for more than a year.
The non-move decision from the RBA had been widely expected by markets. The interest rate decision had been widely expected by economists.
Once again the RBA pointed out that it thought the dollar was now down to levels more in tune with the slide in our terms of trade (down another 3.4% in the June quarter) and commodity prices, repeating the comments it had introduced into Governor Stevens’ statement after the August board meeting.
In that statement the RBA altered its tone on the currency quite significantly, saying it was “adjusting to the significant declines in key commodity prices” as opposed to previous language which said that “further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”. It maintained this wording yesterday.
And it repeated (in its final, important paragraphs) the usual comments about the need for “monetary policy to be accommodative”, with "low interest rates acting to support borrowing and spending”.
"Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market,” Governor Stevens said.
And Governor Stevens’ statement ended, as usual with the wait and see comments: "The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
