The Reserve Bank of Australia (RBA) Board met on 3 October 2017 and left the official cash rate on hold at a record low of 1.50%. There has been no change in the official cash rate since August 2016. The Board expects the Australian economy to gradually strengthen on the back of the tightening labour market, improving non-mining business investment and increasing infrastructure-related public spending.
According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales eased to 101,200 in September after reaching record highs in August, but remain on track for a record year in 2017. In the 9 months to September, new vehicle sales were up 0.1% on a year ago.
Consumer confidence rebounded in September. The Westpac/Melbourne Institute survey of consumer sentiment rose by 2.5% to a four-month high of 97.9. However, confidence is still down 4.4% year on year. Consumers are losing confidence in real estate as the wisest place for savings, according to quarterly data included in the September survey. It was nominated by just 10.5% of respondents, the lowest reading in 44 years. Banks were viewed as the wisest place for savings (29.3%).
CoreLogic national dwelling prices edged up 0.2% in September for a quarterly rise of 0.5%, the slowest quarterly rate of growth since June 2016. On an annual basis, prices were up 8.0%. Prices fell in Sydney (0.1%) and Darwin (0.7%) over the month of September, while Hobart recorded the biggest rise (1.7%) followed by Melbourne (0.9%), Canberra (0.6%), Brisbane (0.3%) and Perth (0.1%). Adelaide prices were unchanged.
The Australian Dollar was mixed in September. It fell against the US Dollar (-0.6%), the Pound Sterling (-4.3%) and NZ dollar (-1.3%). It regained some ground against the Japanese Yen (+1.2%) and was marginally up against the Euro (+0.1%).
Commodity prices were also mixed. A fall in iron ore prices was offset by rises in thermal coal and oil prices. The RBA Index of Commodity Prices was unchanged for September in Australian dollar terms, after an increase of 0.5% in August. Over the past year the index has increased 14.4%, led by higher coal and iron ore prices.
The US Federal Reserve Open Market Committee (FOMC) met on September 19-20 and left the Fed Funds rate unchanged at the 1.0%-1.25% range, the rate set in June. The Fed statement surprised markets by confirming that it will begin winding back quantitative easing in October through the balance sheet normalisation program it signalled in June 2017. The Committee also said it expects “conditions will evolve in a manner that will warrant gradual increases in the Fed Funds rate”. This is despite persistently low inflation below 2 per cent, although the Fed’s statement forecast inflation will stabilise around its 2% objective in the medium term.
The Fed noted that the labour market continues to strengthen and economic activity has been rising moderately this year. Household spending is expanding at a moderate rate and growth in business fixed investment has picked up in recent quarters.
The Governing Council of the European Central Bank (ECB) held its first meeting since the summer holidays on September 7 and decided to keep its key interest rates on hold. The Governing Council expects rates to remain at their present levels for some time, and ‘well past the horizon of net asset purchases’.
The Governing Council also confirmed that its net asset purchases will continue at their current pace until the end of December or beyond if necessary to meet its inflation target.
ECB President, Mario Draghi said the latest information confirmed a broadly unchanged medium-term outlook for the Eurozone. Economic growth 2.2 per cent a year continues to be solid and broad-based. However, he said recent exchange rate volatility is a source of uncertainty with implications for the medium-term outlook for price stability. Mr Draghi said the Governing Council will decide this Autumn on the policy instruments needed for a sustained return of inflation towards the 2% target.
The Bank of England (BoE) Monetary Policy Committee met on 13 September 2017 and voted to maintain the Bank Rate at its historic low of 0.25%. There was a unanimous decision to keep government bond sales and purchase programs unchanged.
GDP rose 0.3% in the second quarter, while unemployment continued to decline to 4.3%, its lowest in 40 years.
The BoE noted that the “latest indicators are consistent with UK demand growing a little in excess of this diminished rate of potential supply growth and the continued erosion of what is now a fairly limited degree of spare capacity. Underlying pay growth has shown signs of modest recovery.”
Since the Brexit vote, the sterling exchange rate has been volatile and the price of oil has increased.
Inflation rose to 2.9% in August and the Bank expects it to rise above 3% in October, well above its 2% target.
China is on track for the first year-on-year improvement in economic growth since 2010. The economy grew at an annual rate of 6.8% in the September quarter, down from the June quarter but still in line with forecasts.
Retail sales rose above the forecast of 10.2% in September, rising by an annual rate of 10.3% in the year to September.
Industrial production and crude steel production increased at an annual rate of 6.6% and 8.7% respectively.
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