“The scepticism is largely based on the fact that past easing efforts have not worked and growth has been persistently surprising on the downside in recent months.”
The risk is that the Chinese population loses confidence, RBC Capital Markets rates strategist Robert Thompson said.
RBC is keeping a sharp eye out for any reaction from the Reserve Bank of Australia to any ongoing weakness in the Chinese economy although Mr Thompson noted that “the Reserve Bank is very, very reluctant to cut rates or even hint that it will cut rates”.
Scaling back
One thing that could get the central bank off the sidelines would be weakness in China, the strategist said, with around one-third of Australia’s merchandise exports destined for China.
Futures markets have already been scaling back Australian interest rate expectations and the prospect of an interest rate cut at the last RBA meeting of 2019 is now a 50-50 scenario.
A plunge in consumer confidence, forecasts of a deeper downturn in residential property prices, and elevated concerns around household debt have detracted from the economy’s reasonable growth and improving employment conditions.
“Outside of housing, the rest of the Australian economy has held up pretty well,” Laminar Capital economist Stephen Roberts said. “The litmus test will be the employment numbers on Thursday.”
If Chinese growth remains robust enough to support Australian trade, then that might make it less likely that the RBA will ease policy, Mr Roberts said. For example, annual growth in Chinese retail sales needs to stay above 8 per cent.
He also pointed to supportive developments aboutUS interest rates late last year, when the Federal Reserve appeared to step back from aggressive rate hike plans this year.
Hints that the trade war between China and the US could reach a solution is another reason for optimism, he believes.
Late last week there were reports that China has offered to increase goods imports from the US by a combined value of more than $US1 trillion over six years.
from Viral up Blog http://bit.ly/2sA5JkR
0 Comments