Housing market takes a spill despite rates cut

Australia: 

The number of new loans to owner occupiers fell 4.2% in July, a surprisingly large drop given the RBA interest rate cut delivered in May, and recent housing indicators. 

On an annual basis, total owner-occupier lending rose just 1.8% in July, the slowest annual growth in 14 months. 

High auction clearance rates and further increases in house prices continue to point to buoyant activity in the housing market and strong housing demand. However, lower housing turnover might account for the moderate pace of growth in lending. 

The value of housing loans for investors rose 0.5% in July, increasing for three consecutive months. 

The annual pace of decline eased to 9.3%, which was the best result in a year, since measures by APRA to curb investor lending took effect. 

Despite the improvement, investor lending remains muted.    

This data tends to be volatile month-to-month and July's decline is very unlikely to be the beginning of a downward trend. 

We expect lending growth will regain momentum to a relatively moderate pace given the recent pickup in recent housing indicators, and particularly since today's data predates the RBA rate cut delivered in August.

Share Markets:

Investor sentiment deteriorated on Friday night on concerns central banks may be approaching an end to their easy monetary policies.

The Dow fell 2.1% and the S&P 500 and the Nasdaq both lost 2.5% for the session.

Interest Rates:

Global bonds sold off (yields rose) on Friday night as market disappointment at the ECB's lack of stimulus on Thursday continued.

US government 10-year bond yields rose 8 basis points to 1.67% (after earlier touching a three-month high of 1.68%), while 2-year bond yields edged up 1 basis point to 0.78%.

Hawkish comments from Boston Fed President Rosengren also boosted bond yields.

Rosengren said the risks to the US forecast "are becoming increasingly two-sided" highlighting the risks from not raising interest rates.

Market pricing of the Fed funds rate rose, implying around a 30% chance of a rate hike in September, a 75% chance by December, and 100% by April 2017.

The German 10-year bond yield rose 7 basis points to 0.01%, the first time it has been in positive territory since the Brexit vote.

Australian bond yields rose sharply on Friday and bond yields (implied by futures) continued the move on Friday night.

Foreign Exchange: 

Risk aversion and speculation about a Fed rate hike boosted the US dollar.

The US dollar index (weighted against a basket of currencies) outperformed all major currencies. EUR/USD fell from 1.1285 to 1.1199, before regaining some lost ground to currently trade at 1.1236.

The US dollar gained ground against the Yen. USD/JPY rose from 101.97 to 103.06. While the Yen weakened against the dollar, it gained versus the other major currencies, benefiting from safe-haven flows.

AUD/USD fell from 0.7657 on Friday morning to a low of 0.7537 earlier this morning. NZD fell from 0.7413 yesterday morning to 0.7315 on Friday night. AUD/NZD fell from 1.0349 to 1.0293 at the time of writing.

Commodities: 

Diminished risk appetites weighed on commodity prices. The oil price fell, retracing most of Thursday night's gain, amid speculation the fall in US crude stockpiles is not sustainable.

China:

Inflation eased in August to annual rate of 1.3%.

This was down from 1.8% in July and 1.7% expected by consensus.

However, this easing in inflation has fewer implications for monetary policy than in the past.

Boosting short-term growth is less of a priority for authorities given it wants to reign in credit growth.

Additionally, recent data suggests economic activity has picked up and the Chinese economy remains on track for growth of 6.5% this year.

United States: 

Wholesale inventories were unchanged in July, compared to consensus expectations for a small increase.

This followed an increase in wholesale inventories of 0.3% in June.

Wholesale sales fell 0.4% in July, disappointing consensus expectations for a small increase. This followed a rise of 1.7% in wholesale sales in June.



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