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Australia central bank cuts rates to all-time low, signals may need more

SYDNEY: Australia’s central bank cut interest rates for the third time this year on Tuesday in a bid to stimulate a sluggish economy and signalled it was prepared to do more if needed, knocking the local dollar to a one-month low.

The country’s economy has expanded for 28 years without a recession, but risks have intensified over the past year, with growth slowing, inflation lukewarm, the property market subdued and unemployment ticking higher.

The Reserve Bank of Australia’s (RBA) quarter-point cut took the cash rate to an all-time low of just 0.75%, leaving little room for more reductions and raising the possibility of unconventional policy easing.

RBA Governor Philip Lowe said moves by global central banks to ease monetary policy played a part in the decision as he signalled the need for an extended period of low interest rates.

“The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed…,” Lowe said.

Financial futures are now pricing in a 60% chance of a fourth cut to 0.5% in November, compared with under 30% before the latest decision.

Expectations that rates will be lower for longer sent the Australian dollar slipping to $0.6706, its weakest since early September.

“In cutting rates so aggressively this year, the RBA is hoping to generate a stronger labour market, higher wage growth and to stimulate domestic consumption,” said Anthony Doyle, a Sydney-based, cross-asset strategist at Fidelity.

“Fortunately for the RBA, the transmission mechanism of monetary policy is fairly quick in the Australian economy,” he said, noting around 80% of mortgages were on variable rates.

The RBA’s back-to-back easings in June and July have so far done little to boost activity outside of the housing market.

Indeed, figures earlier in the day showed home prices across Australia’s capital cities jumped 1.1% in September, led by Sydney and Melbourne, but approvals to build new homes collapsed to the lowest since 2013.

Economists expect construction-related job losses in coming months which could take the unemployment rate to as high as 5.5% from 5.3% now and the RBA’s goal of around 4.5%.

“The RBA now has only three, or possibly even fewer, more conventional cuts available to them before they will have to venture into unconventional monetary easing territory – negative rates, QE (quantitative easing), or bond yield targeting,” Rob Carnell, chief Asia-Pacific economist for ING wrote in a note.

Governor Lowe acknowledged the RBA’s decision to lower rates was partly in response to slack in the labour market. The jobless rate in August worsened to a one-year high of 5.3%.

“The Board took the decision to lower interest rates further today to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target,” Lowe said in a short statement accompanying the rate decision.

“The economy still has spare capacity and lower interest rates will help make inroads into that.”

Lowe sees a “gentle turning point” for the economy after annual growth hit a decade low of 1.4% in the quarter-ended June.

The governor is due to speak at a business event in Melbourne later in the day where he is expected to throw more light on future policy course.

Record low interest rates have boosted home prices, helping end two years of continuous declines which ate into household wealth and confidence in a blow to consumption and the broader economy.

Some economists believe the price revival could prove a blessing for the construction sector, which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

Building approvals fell 1.1% in August, less than a sharp 10% slide in July but confounding market expectations for a bounce of 2.5%, data from the Australian Bureau of Statistics (ABS) showed.

One positive sign in the data was a small bounce in approvals to build new apartments while non-residential construction surged 54%. – Reuters


Australia home prices jump most in 2-1/2 yrs but home approvals sink ahead of RBA decision

SYDNEY: Australian home prices posted their biggest monthly jump in 2-1/2 years in September, with the dominant markets of Sydney and Melbourne bouncing strongly, but approvals to build new homes collapsed to the lowest since 2013.

Tuesday’s grim building approval numbers reinforced expectations that the Reserve Bank of Australia (RBA) would cut interest rates by another quarter-point at a policy meeting later in the day (0430 GMT), knocking the local dollar to one-month lows of $0.6733.

Building approvals fell 1.1% in August, less than a sharper 10% slide in July but against market expectations for a bounce of 2.5%, data from the Australian Bureau of Statistics (ABS) showed.

Total building approvals are at the lowest level since January 2013 and 44% below their November 2017 peak, in a blow to what had been one of Australia’s stronger sectors.

“These data indicate that we’re yet to see a bottom in building approvals and suggests increased risk of a deeper residential construction downturn,” said Kaixin Owyong, Sydney-based economist at National Australia Bank.

Worried about a broader economic slowdown, rising unemployment and tepid inflation, the RBA chopped the cash rate in back-to-back meetings in June and July to a record low of 1% and has shown willingness to go again if needed.

Futures now imply an 80% chance the RBA will reduce interest rates for the third time this year to 0.75% at its Tuesday board meeting. One more cut to 0.5% is almost fully priced in by early 2020.

Record low interest rates have boosted home prices, helping end two years of continuous declines which ate away household wealth and confidence in a blow to consumption and the broader economy.

Separately, figures from property consultant CoreLogic on Tuesday showed home prices across capital cities rose 1.1% in September from August, while values for the nation as a whole gained 0.9%, the biggest jump since March 2017.

“CHALLENGING SCENARIO”

Some economists believe the price revival could prove a blessing for the construction sector which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

In a positive sign, Tuesday’s data showed a small bounce in approvals to build new apartments while non-residential construction surged 54%.

“The recovery in non-residential construction over recent months should go some way to countering the weakness in residential,” economists at ANZ wrote in a note.

“Lower interest rates should eventually filter through to a pick-up in housing approvals.”

The CoreLogic data showed the Sydney and Melbourne markets each saw price jumps of 1.7% in September.

On a year-on-year basis, Sydney prices were still down 4.8% and Melbourne off 3.9%, but that was a major improvement from the double-digit annual declines clocked earlier this year.

This uptrend led economists at RBC to raise their forecasts for Australia’s house prices to an annualised rate of 6-8% growth in coming quarters, up from 4%.

However, RBC’s Su-lin Ong said she doesn’t expect the gains to be sustained, citing still modest property listings and turnover as well as rising unemployment, among other factors.

“Indeed, the more challenging scenario for the RBA in 2020 would be the persistence of sub-trend growth, sub-target inflation and a weaker labour market while house prices stay well above nominal (output) growth and the cash rate reaches the lower bound,” Ong said. – Reuters


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Australian home prices find a floor in July, outlook improves

SYDNEY: Australia’s hard-hit property markets of Sydney and Melbourne enjoyed a second straight month of gains in an early sign that rate cuts were feeding through although slow wage growth and record household debt means boom times are still distant.

An end to the long downturn will be relief to the central bank, which cut interest rates in June and July to a record low 1%.

Yet, despite Thursday’s data showing home prices across Australia’s major cities rose 0.1% last month, economists are not too hopeful of a solid turnaround.

“July officially marks the end of the longest and deepest house price correction in Australian history,” UBS economist George Tharenou said in a note to clients.

“While prices and sentiment have clearly turned, we remain cautious and do not expect a V-shaped recovery,” Tharenou added.

“Importantly, given the only modest price gains we expect, and still weak volumes, this recovery will likely not be a material boost for consumption.”

Record high household debt-to-income ratio together with stricter bank lending rules and an increasing supply of new apartment units are likely to keep the lid on home prices, further easing pressure on construction activity.

As a result, AMP’s Shane Oliver expects “constrained” low single-digit price gains through 2020.

ANNUAL WAGE RISES

In a sign the property sector turmoil could extend, separate data on Thursday pointed to a slowdown in annual wage rises in new enterprise bargaining agreements (EBAs), with weakness seen across public and private sector firms.

EBAs for the March quarter eased to 2.7% from 2.3% in the period ended September 2018, government data showed.

“This suggests that the gradual improvement we have seen in wages since 2017 may falter, particularly given the recent rise in underutilisation, supporting the need for another rate cut in 2019,” analysts at ANZ said.

June quarter wage price index data is due on Aug. 15 and could point to a slowdown as the unemployment rate hovers at an eight-month high of 5.2%.

Even so, the early signs of house-price revival were seen as a mild positive for Australia’s retail sector, which is reeling from a protracted slowdown.

Housing stock is valued at A$6.6 trillion ($4.52 trillion), or almost four times Australia’s annual gross domestic product.

So, an end of the long property market downturn could be a lifesaver for Australia’s struggling economy, given how erosion of housing wealth undermined consumer confidence and spending power. “Sentiment based measures suggest volumes will pick up in coming months,” said Matthew Hassan, a senior economist at Westpac. A Westpac consumer survey pointed to a likely recovery in sales over the second half.

“Importantly, the next few weeks will also start to see some seasonal shifts,” Hassan added. “While spring doesn’t officially start until Sept. 1, auction markets typically see a lift in clearance rates from around August.”

But there is little cheer for real estate firms.

Australian construction firm Adelaide Brighton downgraded earnings guidance this week amid a steep drop in housing starts.

Residential developer Ralan Group called in administrators this week, becoming the second major real estate company to collapse over the past two months. – Reuters


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British billionaire Dyson snaps up Singapore’s priciest penthouse

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British billionaire Dyson buys Singapore’s priciest penthouse

SINGAPORE: British billionaire James Dyson, inventor of the bagless vacuum cleaner, has bought Singapore’s most expensive penthouse, official records show.

The three-story penthouse – once valued at S$100 million ($73.44 million) – sits on the 62nd-64th floor, is equipped with a private pool and located in the heart of the city-state’s financial district.

Dyson, a Brexit supporter, announced in January he is moving his head office from Britain to Singapore to be closer to its fastest-growing markets. His eponymous firm – which also makes bladeless fans, air purifiers and hair dryers – plans to build its first electric car in the city-state.

Wallich Residence’s penthouse sits in the tallest building in Singapore, built by developer GuocoLand Ltd.

Before its unveiling in 2017, the highest asking price for the “bungalow in the sky” reached a dizzying S$100 million, making it Singapore’s most expensive.

Official title records seen by Reuters show Dyson and his wife became tenants of the 99-year leasehold property on June 20. The records did not state the price paid but Business Times reported that Dyson bought the property for S$73.8 million ($54.17 million).

“Given the decision to locate the headquarters in Singapore and the growing focus of the company’s business in the region, of course James Dyson has bought a property there,” a Dyson spokesman said, without giving further details of the purchase.

The 72-year-old has become one of Britain’s best-known entrepreneurs, creating a multibillion-dollar company from an insight that a cyclone could collect household dust better than a clogged-up bag.

Singapore is an island of well-heeled stability that attracts the super-rich from its less-developed Southeast Asian neighbours, as well as multi-millionaires from mainland China.

To cool its property market, the Singapore government intensified property curbs last year after a 9.1% annual increase in home prices and as developers paid record amounts to buy land.

Foreigners now have to pay levies of over 20% to buy property in the city-state under the new rules.


Australia business confidence falls back in June – survey

SYDNEY: A closely-watched measure of Australian business confidence retreated in June even as interest rates hit record lows, though Tuesday’s survey did show sales and employment managed to bounce a little.

National Australia Bank’s index of business conditions rose 2 points to +3, reversing a decline in May. In contrast, the survey’s measure of business confidence retraced its gains and fell 5 points to +2 in June.

“Overall, the survey results for June continue to suggest that the business sector has lost significant momentum over the past year or so,” said NAB Group Chief Economist Alan Oster.

“The recent run of results also suggest that the economy is unlikely to record a significant pickup in growth in Q2,” he added.

The economy expanded at its slowest pace in a decade in the first quarter of the year as consumers kept a tight rein on spending amid sluggish wages and falling home prices.

The Reserve Bank of Australia (RBA) has responded by cutting interest rates by a quarter point in both June and July, taking them to a record low of 1%.

NAB’s survey showed only a limited impact on activity in June. The measure of trading, or sales, edged up 3 points to +6, but profitability stayed soft at -2. Forward orders were also weak at -4.

One bright spot was a 3-point bounce in the survey’s employment index to +5, which hinted at some resilience in labour demand after the official jobless rate unexpectedly rose to 5.2%.

The RBA cited the need to push unemployment down to around 4.5% when it cut rates. Survey measures of inflationary pressure remained weak in June, with retail prices falling amid intense competition.


Weak Australian retail sales, job slowdown point to third RBA rate cut

SYDNEY: Australian retail sales disappointed yet again in May and job vacancies fell from record highs, adding to signs of an underpowered economy and bolstering views the country’s central bank may have to cut rates for a third time this year.

Thursday’s data from the Australian Bureau of Statistics (ABS) showed retail sales rose a pedestrian 0.1% in May after falling 0.1% April, and below analysts’ forecast of a 0.2% gain.

The weak outcome, led by food retailing, department stores and clothing, point to another quarter of slow economic growth after momentum eased in the second half of 2018.

Household consumption has been a major source of worry for the Reserve Bank of Australia (RBA) as miserly wage growth and falling home prices eat into spending power in a sector that accounts for 56% of the economy.

That was a major reason the RBA last month cut its benchmark cash rate for the first time since August 2016. It quickly followed up with a second cut to an all-time low of 1.00% this week in the hope of reviving growth and inflation.

Financial markets are pricing in a near 90% chance of a third cut to 0.75% before Christmas. With another 25-basis-point easing already in the price, the local dollar barely moved at $0.7037.

“Although the RBA would prefer it not to be the case, our forecasts suggest the heavy lifting on policy will still need to be done by monetary policy,” said Citi economist Josh Williamson.

“The key to our view on monetary policy is that the economy will continue to operate with excess capacity for longer than previously expected.”

Underscoring that view, the number of job vacancies fell 1.1% in the three months to May to 241,500 from 244,200 in the Dec-Feb quarter, the first decline since February 2016, separate data from the Australian Bureau of Statistics (ABS) showed. – Reuters