October, 14 2016 by lsr team

The euro area LI continues to put in an above consensus call. It is probably over predicting growth somewhat but its strength is fundamentally underpinned by the newly emerged German locomotive. While German demand often turns out to be derived from others, chiefly China, in this case it is genuine. In fact, this is highlighted by our below consensus Australia call. China’s stimulus has not fed through to a rebound in private demand, although easing PPI deflation is helping manufacturers.

September, 23 2016 by lsr team

The RBA’s shift to a neutral bias at its meeting in September, following 50bps of rate cuts in 2016, did not come as a surprise. Perhaps more interesting was the discussion of the most recent collateral damage in the global monetary policy race to the bottom. Officials took note of the distortive impact of the BoJ’s policies on Australia’s repo market, manifested in rising repo rate spreads relative to the RBA’s cash rate. In turn, persistently high repo rates put upward pressure on Australian banks’ funding cost base, further strengthening the...

June, 09 2016 by lsr team

The RBA kept the cash rate at 1.75% following last month’s 25 basis point cut, signalling a wait-and-see stance is appropriate as the economy reaches an inflexion point. Real GDP jumped 1.1% q/q in Q1, taking the annual rate of growth above 3%. However, this positive GDP surprise failed to impress investors. Gains in yields, equities and the AUD on the news proved short-lived, confirming the market’s recognition that the glass looks half-empty for Australia’s economy.. Click above to watch the full video.

March, 22 2016 by lsr team

Households have been borrowing more and saving less, suggesting their finances are increasingly vulnerable to shocks – not least in view of stretched property market conditions. This is a topic that was repeatedly raised during out recent visits to Australian clients. Spurred by easy monetary policy and a buoyant property market, the leverage of households –predominantly mortgages- has risen to a record 1.8 times income. At the same time, their savings ratio has been declining through the RBA’s extended easing cycle, raising questions about the robustne...

September, 22 2015 by lsr team

In a recent note, we highlighted increasing EM political risk. Emerging markets constitute the ‘deflationary’ leg of our ‘deflationary boom’ forecast for the global economy. But heightened political risk is not just an emerging markets issue. Greece, for example, just held its third election in nine months. In Spain the rise of two new reformist parties, Podemos and Ciudadanos, effectively ensures that a coalition government will emerge from November’s election. Australia has had four prime ministers in 27 months whereas the previous four premi...

July, 27 2015 by lsr team

The minutes from July’s RBA meeting confirmed a cautiously dovish monetary stance. Given the subdued inflationary pressures- reflecting sluggish growth and a weak labour market, the downward pressure on policy rate should persist, at least in the near term. At the same time, Governor Stevens is under pressure to protect the economy from a lack of fiscal drive. The end of Australia’s commodity supercycle has far-reaching fiscal implications: government finances are stuck in chronic deficit and foreign debt build up is accelerating. Click below to find out...