Happy RBA Day!

RBA = On Hold for a while.

It’s the first Tuesday in July and that means that it is RBA day once again. Now we’re fairly sure that not even the most ardent callers of a June hike are looking for a move now in July but it’s important to remember what was said after the May Statement on Monetary Policy and the hysteria from the punditry that was concurrent with the RBA’s quarterly release.

I won’t go over it again in detail but recall we were told loudly and aggressively that “the RBA is signalling an imminent tightening” that they were “preparing the ground”  for a June move and so on. You’ll no doubt remember the headlines this engendered in the main stream media and on the nightly news. But I want you to think about that again because now that the data (see yesterday’s piece as an example)  is flowing the way we have been saying for months (in this space since we started in May and others previously) we are seeing a drift the other way and into extreme negativity by the punditry and the media.

This is really important because we saw yesterday’s retail sales result characterised as a “surprise” both in the press and by other commentators but it won’t have been a “surprise” to our readers. This is not to pump up our own tyres, we probably don’t need any help on that 🙂 , but to make a really important point.

We are not going to get all “beared” up on the economy now that the data is flowing exactly the way we thought it would and now that Australians showing the signs of the stress we have been talking about (they have been for ages actually) we are not going to extrapolate this weakness to recession. Nor should our readers, the press or the punditariat.

Why am I focussing on this? Because Australians are simply dealing with their debt burden in a rational way which as we have been talking about for a couple of years now in various guises and this rebuilding process is working very well at rebuilding household balance sheets.

What we have is a period of rebuilding, a retail spending drought (albeit it relative) which will break once incomes rise and or debt is repaid. It may take some time but it is not a dire outcome by any stretch of the imagination.

Certainly it hurts retailers as yesterday’s data showed but the trend rate of 0.3% is still an annualised rate greater than inflation and not sustainably going backwards by any stretch of the imagination.

The market may need to re-calibrate its views on growth and income rates for the ASX200 (particularly the Banks), retailers will need to set their business models for small nominal growth but no “real” growth and we all need to watch China as the Australian economy’s “Significant other” (see correlation below – from RBA) and there are risks around that over the next year or so from overbuilding – China is not immune from the laws of supply and demand.

But the key here is that Australian’s are naturally making room for the mining boom, out of necessity, but that this is giving the RBA the room to pause and taking pressure of the need to hike interest rates. But while mining and investment continues to grow this just means we have a barbell economy. It’s not super strong nor is it super weak it’s just slower growth but growth nonetheless.

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