AUSTRALIA DATA: Lower Rates & Inflation Drive Improved Consumer Sentiment
March Westpac consumer confidence jumped 4.0% m/m to 95.9, the highest in three years, boosted by the RBA’s 18 February 25bp rate cut, the start of an easing cycle. It also revised down 2025 underlying inflation projections and said that it has “more confidence that inflation is moving sustainably towards the midpoint” of the band after lower-than-expected Q4 CPI. Cost-of-living has been the main concern for households and both of these developments appear to have reassured them that their financial situation will improve.
Australia Westpac consumer confidence
Source: MNI - Market News/Refinitiv
- RBA Governor Bullock sounded very cautious regarding the outlook for further easing, which may keep a lid on consumer confidence along with significant global uncertainties depending on how data and events unwind. Westpac expects rates to be left at 4.1% on April 1 but is forecasting another cut at the May 20 meeting.
- In terms of news-recall, respondents said that while domestic news had improved, it had deteriorated from overseas. “Inflation” remained the main topic though with 40% recalling it but the share seeing it as bad was down 10pp to 65%.
- Westpac notes that the improvement in sentiment was broad based as the index approaches the 100-breakeven level. The 12-month and 5-year ahead economic outlooks were stronger but still below their November 2024 peaks, when the US election was held. Both past and future family finance assessments improved.
- With the economy still creating jobs and the unemployment rate only 4.1%, unemployment expectations fell 6.3% to their lowest in over two years.
- The “time to buy a major household item” jumped 6.9% to 97.1, signalling that the recovery in household spending is likely to continue.
- The “Mortgage Rate Expectations Index” fell 2.2% to 88.2 with 36% expecting rates to fall over the next year, 22% no change and 26% expect them to rise.
- The February monetary easing boosted the “time to buy a dwelling” and house price expectations components.
Australia Westpac unemployment expectations
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.665/851 - High Feb 5 / High Dec 11
- PRICE: 95.575 @ 16:37 GMT Feb 7
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: Gov Kugler: "Prudent" To Hold Rates "For Some Time"
Gov Kugler (permanent voter, leans dovish) said Friday that rates were likely to be held for "some time" - making her the latest FOMC participant to express little impetus for a cut in the near-term.
- "The cautious and the prudent step is to hold the federal funds rate where it is for some time, given that combination of factors, given that the economy is solid, given the fact that we haven't achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation or maybe reducing output and growth into the future."
- "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies." She noted in a Q&A that inflation has recently "firmed a little bit."
- She noted that the January jobs report is "consistent with a healthy labor market that is neither weakening nor showing signs of overheating,"
FED: Federal Reserve "Earnings" Briefly Go Positive, But Hole Is Still Large
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
