In a panel discussion yesterday, RBA Assistant Governor Edey said there was "no doubt" housing demand is rising, but that "we shouldn't be rushing to reach for the bubble terminology" when prices rise at an above average rate, saying this was "unrealistically alarmist."
Ratings agency Standard & Poor's lowered its long term credit rating on Western Australia to AA+, from AAA. The main reason was that WA's debt burden is at the high end of the domestic peer group, and in S&P's view it is likely to continue rising. The outlook has been revised to stable, from negative.
The Westpac leading index annualised growth rate indicates the likely pace of economic activity three to nine months into the future. It rose to 4.1% in July, above its long-term trend rate of 2.9%.
The Conference Board leading index for Australia rose 0.3% in July, after slumping 1.1% in June. The six-month growth rate of the leading index is higher now than in the second half of 2012.
US share markets surged overnight after the US Federal Reserve surprised financial markets by not tapering its quantitative easing programme. The Fed said it needed further evidence that economic progress will be sustained, and added that its policy interest rate should remain low for even longer than previously thought. The market had widely expected the Fed to reduce its $85bn-per-month asset-buying scheme by at least $10 billion. So there was an immediate sharp response in equity and other financial markets.
The S&P 500 finished 1.2% higher at a new peak and the Dow Jones closed up 1%. Utility and real-estate stocks were the outperformers in the session.
We can expect this strong finish in US equities to flow on to the ASX 200 this morning.
US 10-year Treasury bond yields early in the overnight session had moved up to a high of 2.90%, slipping to 2.85% just before the FOMC statement. The immediate reaction to the Fed statement was a collapse to 2.73%, extending to 2.67% during Bernanke's press conference. US 10-year yields ended the session 16bp lower and off 21bp from their intra-day highs. These are big moves.
Australian 3-year government bond yields (implied by futures) initially made a six-month high at 3.19% but abruptly reversed following the FOMC to 3.00%. The 10-year bond yield initially made an 18-month high at 4.21% before plunging to 3.99%.
The USD sank in the wake of the Fed statement. It should continue to remain under selling pressure in the near term. The weakness in the USD was broad-based. EUR/USD rose from 1.3250 to 1.3512 - a seven-month high. USD/JPY fell from 99.20 to 97.87.
AUD/USD rose from 0.9340 to 0.9529 - a three-month high. The risk lies with further upside in the near term for the AUD with upside momentum strong. We might, however, see some consolidation of these sharp moves first. The first key resistance is at USD0.9530 and the AUD is brushing just under that at the time of writing. The next major target is USD0.9665.
The timing of the Fed statement meant that some commodity markets were already closed by the time of its release. Those commodities that were still trading soared in the wake of the statement. Gold and oil prices soared.
New property prices in China rose 0.8% in August. Further, property prices rose in 69 of the 70 cities the government tracked. Reuters reported that new home prices rose 8.3% in the year to August, the eighth consecutive monthly rise in annual terms.
There are holidays in China today.
Construction output rose 0.3% in the Eurozone in July, helping the annual rate of contraction ease to 1.2%.
New Zealand: The current account deficit widened from NZ$0.4bn in Q1 to NZ$1.3bn in Q2. GDP figures for the June quarter are released later this morning.
Bank of England policy makers voted unanimously to keep policy unchanged this month as an improving economic outlook prompted agreement that no more stimulus was needed. In a switch from August, when some Monetary Policy Committee members saw a "compelling" case for a loosening of policy, the minutes of the September 3-4 meeting showed that "no member judged that further stimulus was appropriate at present". The minutes, published overnight, also showed the panel voted 9-0 to keep the bond-purchase program at £375bn and the benchmark interest rate at a record low of 0.5%.
The US Federal Reserve shocked markets early this morning by saying it would maintain bond purchases at their present pace, confounding expectations of a scaling-back in asset purchases from the current $85bn a month.
Fed Chairman Ben Bernanke said the economy and labour market had not improved enough to allow a reduction in stimulus. "The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market," it said in a statement.
Bernanke in the new conference that followed the statement said that he never promised any tapering and that the path of tapering is still entirely conditional upon data. The Fed Chairman refused to commit to a tapering of purchases later this year, as he had previously suggested. In the news conference he said "there is no fixed calendar schedule. I really have to emphasise that...if the data confirm our basic outlook, if we gain more confidence in that outlook ... then we could move later this year."
Bernanke had stated in June that officials expected to begin slowing the pace of purchases later this year and end the program by mid-2014, at which point the central bank expected unemployment to be around 7%. In his less committal statement overnight, he said a jobless rate of 7% was not a "magic number" that policymakers were shooting for as they figure out when to halt the buying.
In fresh quarterly projections, the Fed cut its forecast for 2013 economic growth to a 2-2.3% range from a June estimate of 2.3-2.6%. The downgrade for next year was even sharper. It cited strains in the economy from tight fiscal policy and higher mortgage rates as it explained why it decided to maintain asset purchases at the current pace.
Nine of the ten members agreed with the decision. The single dissent was from Kansas City Federal Reserve Bank President Esther George who said she was worried about financial bubbles due to the Fed's low-rate policy.
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