• • • Variable Direction of risk 6 months Comment Cash rate Two factors will influence the RBA: labour market strength and whether the recent financial market volatility results in weaker global and domestic demand. The past two jobs numbers have been weak, although this followed an extended run of strength. The global data is mixed, but the domestic economy is doing Ok. Of more concern is that some forward-looking indicators (building approvals and capex) suggest weakness as we enter the second half of the year. Given the risks, we are expecting two 25bp rate cuts by year-end. 90-day bank bills Bill rates are currently about right given the near-term risks for the cash rate. As we progress through the year, bill yields are likely to decline as the cash rate is reduced. 3-year swap Three-year swap yields have declined in line with the increase in financial market volatility. A modest further fall is likely in the second half of the year as financial markets price in imminent rate cuts. 5-year swap There also remains some potential for longer-term swap yields to fall further in line with lower short-term yields and heightened global financial market volatility. AUS/USD The $A has stabilized in the early 70c range reflecting the recent rebound in commodity prices and an extended run of stronger economic data. Commodity prices are heading lower and domestic interest rates will likely decline further. This means a further fall in the $A is likely in 2016, most significantly against the Euro and the yen.
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Variable Direction
of risk 6
months
Comment
Cash rate Two factors will influence the RBA: labour market strength and
whether the recent financial market volatility results in weaker global
and domestic demand. The past two jobs numbers have been weak,
although this followed an extended run of strength. The global data is
mixed, but the domestic economy is doing Ok. Of more concern is
that some forward-looking indicators (building approvals and capex)
suggest weakness as we enter the second half of the year. Given
the risks, we are expecting two 25bp rate cuts by year-end.90-day bank bills Bill rates are currently about right given the near-term risks for the
cash rate. As we progress through the year, bill yields are likely to
decline as the cash rate is reduced.3-year swap Three-year swap yields have declined in line with the increase in
financial market volatility. A modest further fall is likely in the second
half of the year as financial markets price in imminent rate cuts. 5-year swap There also remains some potential for longer-term swap yields to fall
further in line with lower short-term yields and heightened global
financial market volatility. AUS/USD The $A has stabilized in the early 70c range reflecting the recent
rebound in commodity prices and an extended run of stronger
economic data. Commodity prices are heading lower and domestic
interest rates will likely decline further. This means a further fall in
the $A is likely in 2016, most significantly against the Euro and the
yen.
Variable Last week 29 Feb 2016 End Jun 2016 End Dec 2016 End Jun 2017
Cash rate 2.00% 2.00% 2.00% 1.50% 1.50%
90-day bank bills 2.27% 2.29% 2.15% 1.75% 1.75%
3-year swap 2.03% 1.99% 2.00% 1.80% 1.80%
5-year swap 2.30% 2.23% 2.30% 2.00% 2.10%
AUD/USD 0.7138 0.7124 0.67 0.65 0.65
Another big drop in capex is likely next
financial year.
The likely fall is disappointing given that business
surveys suggested a more positive outcome.
Surveys suggest that corporate borrowing
conditions are not a problem.
And business balance sheets are in decent
shape.
But profits are expected to decline over the
next year.
And corporate profitability is below average.
The profit share is now at its lowest level in
15 years
Profitability is expected to be particularly weak
in mining.
Mining also has the greatest excess capacity.
The sectors with the least have the lowest
capex spend.
No surprise mining is the major driver of the
capex fall, but a decline is likely across most
industries.
Economic and Market Analysis
NSW Peter Munckton 0439 310 837 [email protected]
Financial Markets
QLD / WA David Abbott 07 3212 3049 [email protected]
NSW/VIC Nigel Hodgson 0416 180 087 [email protected]
Trade Finance
QLD Steve Klinakis 0417 658 348 [email protected]
NSW Lloyd Guy 0467 798 132 [email protected]
VIC Ray Buxton 0427 049 430 [email protected]
WA Andrew Opie 0481 008 924 [email protected]
Corporate Banking
QLD Doug Snell 0414 887 659 [email protected]
NSW Jason Mares 0413 013 349 [email protected]
VIC Darryn Cahill 0411 080 985 [email protected]
WA Michael Storer 0438 456 834 [email protected]
Agribusiness
Tim Pryor 0407 754 535 [email protected]
Gerard (Ged) Thom 0477 341 424 [email protected]
Business Banking
QLD Leo Hawker 0418 228 071 [email protected]
Property
QLD Warren Bobbermien 07 3212 3510
NSW Glenn Hilleard 02 8222 8332
WA Louis de Klerk 0412 985 837
Private Bank
QLD Doug Snell 0414 887 659 [email protected]
Equipment and debtor finance
Qld Brendan Casey 0419 755 031 [email protected]
NSW Michael Campbell 0419 658 902 [email protected]
Vic Nick Stoneham 0422 157 781 [email protected]
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