Financial markets make a slow-start to the week

ASX edges higher

The ASX 200 edged higher yesterday, as what is a technically overbought market recovered some of its Friday losses. Upside momentum has clearly cooled for the local stock market, ahead of a week heavily geared towards positioning for this weekend’s G20 meeting. Overall, it must be said it was a low impact and low activity day’s trade yesterday. Consumer stocks were most responsible for the day’s losses, sapping around 4 points from the ASX 200, while Real Estate and bank stocks lead the market’ gains, following signs of improvements in clearance rates over the weekend in the Melbourne and Sydney housing markets.

Aussie Dollar pops on RBA comments

The Australian Dollar experienced a little lift to kick-off the trading week. A short-term phenomenon, for sure, the local unit climbed following comments made by RBA Governor Philip Lowe at a panel discussion yesterday morning, that “… it’s legitimate to ask how effective more [monetary policy] easing would be”. Though certainly not a statement about future policy, the comments did have the small affect of leading traders to briefly unwind their bets for future rate-cuts from the RBA, boosting the AUD. Currently, the market is pricing in a 77% chance of another interest rate cut next week.

Dr. Lowe’s policy prescriptions

Perhaps only for the econo-nerds: Governor Lowe did make some interesting statements about Australia’s future economic management, the role of monetary policy in the economy, and what might be required (the world-over) to support long-term economic health, yesterday. Reiterating what he’s implored in several of the RBA’s recent communications, Governor Lowe suggested that government should be “full of ideas” for large-scale fiscal and structural reforms, as a means of underwriting economic growth moving into the future. And the strong implication was that, with long-term borrowing rates at historically low levels, the time for such reform is now.

The (true) dead hand of government

It makes for a pertinent debate: what and/or who is best at managing and growing the wealth of a nation? Demonstrably, the onus, since the Global Financial Crisis, has fallen disproportionately upon central banks to manage the economic fortunes of society. Though flawed, the historical process behind this quasi-system is explicable. Years of fiscal profligacy in Europe and the United States, particularly leading into the GFC, has rendered governments in those economic regions more-and-more impotent. This has created an over-reliance on central bankers to compensate for the noteworthy lack of fiscal firepower possessed by these governments, and sustain global economic wellbeing.

Australia’s fortunate position

Central bankers, most pertinently at the Fed, ECB and BOJ, have thus (arguably) gone beyond their traditional mandate of price stability and full employment to ensure they achieve the tacit objectives outsourced to them by government. But, going back to Governor Lowe’s commentary yesterday, herein lies the rub of this for the Australian economy: owing mostly to good fortune, Australia’s fiscal position is relatively strong. That means that the RBA shouldn’t and needn’t be relied upon the same way other nations rely upon their central banks. Our government can do some of the heavy lifting – provided it can spend the money in productive ways.

Another night of subdued trade

In overnight trade, markets were characterized by a small case of Monday-it is. Perhaps one could call it the hangover from such a big-week last week. Wall Street has traded on low activity, with the S&P 500 continuing to dance around its all-time highs. Sovereign bond yield in North America and US fell once again, as markets maintain their move to price rate-cuts around the globe. The USD has remained offered. Falling yields and the weaker Dollar has pushed gold to fresh highs around $1420. And what it all implies for the ASX 200 today: SPI Futures are pointing to a roughly 14-point drop this morning.

Crypto’s spark-up

Crypto-currencies are experiencing a new lease-on life, with Bitcoin climbing above the $US11,000-mark for the first time in 15-months. Bitcoin has apparently benefitted from a handful of factors in the past month-or-so. For one, the prospect of imminent rate-cuts from central bankers across the globe is fostering both greater risk-taking, as well as a desire to diversify exposures to traditional, fiat currencies. On top of that, and perhaps more importantly, the re-escalation of the US-China trade-war, plus heightening geopolitical tensions across the globe – especially in the middle-east – is boosting the appeal of methods of payment and exchanges that skirt economic sanctions, and other regulations.