The RBA was indicating it had plans to cut rates even further this year and yesterday it did just that by a more modest 25 basis points.
But I wouldn't say that things are all that much worse. It seems to me
that the latest move is all about confidence, and mostly about what's
happening in the rest of the world. Governor Stevens barely mentioned
the domestic economy in his explanation
yesterday.
And right before the RBA met on Tuesday, global markets had a little
bit of a freak out. US jobs data came in worse than expected on Friday,
as did data on Chinese manufacturing. With Europe still looking like a
basket case, markets had no one they could turn to, and promptly fell
like Wiley Coyote from a cliff. Billions were wiped off the major stock
markets, and when the Australian market finally opened on Monday, it
immediately followed suit, wiping off all the hard-fought gains it had made
since the start of the year (though it has since put much of it back).
Markets are funny things, which is why I prefer property as an investment
class. I don't think the data justified the kind of turn-around in outlook that
followed. But sentiment is everything, and people were panicking. That's
why I think the RBA's move this month is almost entirely about confidence.
As I noted a few weeks ago, it's got heaps of room to move if it wants to,
and so probably figured 25 basis points was a bargain if it could keep
Australia from getting the jitters.
Not that everything in Australia is looking rosy. Far from it. House price
data released last week are a major concern. They show house prices in
the Australian capitals fell 1.4 percent in May to the lowest level in six
years. Hopefully 75 basis points
worth of cuts in two months will start
to turn this around. Quickly.
The fundamentals of the Australian economy are still solid, and on a
global scale, are positively outstanding. The RBA will be hoping that
Australians don't lose sight of the ball and get spooked by all the chaos
happening off-shore. If we can do that, we should be able to muddle
through.
