There's not much good news around to welcome Santa!
Nearly every economist got this week's GDP figures for the September quarter wrong (+0.3% and 2.8% YoY). Now there's speculation that the R word will be back on the agenda. And if not a Recession, then possibly a slowdown, and rate cuts down the track from the RBA if the December quarter figures are equally disappointing. That's a big turnaround in expectations, even if most experts weren't expecting an upward movement in rates any time soon.
Anecdotally, based on going to a department store earlier this week, and worse still, a shopping mall, (which Hedge Clippings generally tries to avoid like the plague unless absolutely necessary) there doesn't seem to be much Christmas cheer running through retailers' cash registers. Maybe consumers are all shopping online, maybe they're waiting until the last moment (like yours truly), but quite possibly they're just pulling their heads in.
Why? Because as noted above, there's not much good news around unless you're an extreme, and possibly unrealistic optimist!
- As recently as May this year one of the (so called) expert real estate commentators downgraded their 2018 housing price forecast on a weighted capital city basis to between -2% to +2%. Fast forward just 6 months and with the property market down 10% they're realising a further 10% fall is not out of the question as banks pull their heads (sorry, lending criteria) in and faith in the financial markets has been tested by the exposure of the Hayne Royal Commission on the front pages and TV nightly news.
- Irrespective of one's political preferences there's a general lack of confidence in our glorious pollies, and an election, and a change in government is just around the corner.
- Globally the Trump / China spat is far from resolved, creating uncertainty in US markets. Brexit is uncertainty personified, and even the German economy - not long ago the envy of the world - is suffering.
- In the US, 10 year bond yields, having recently threatened to rise above 3.5% and spoil the equity market's party, are now threatening to fall below 3% based on concerns about a US slowdown in 2019. The yield curve is close to inverting as 10 and 2 year bond rates are dangerously close to each other.
- Every US recession for more than half a century has been preceded by an inversion of the curve, although to be accurate not every inversion has been succeeded by a recession.
Could the unthinkable - an end to Australia's record growth run - happen? Hopefully not, but there are enough signs, and opinions pointing in that direction, that it would be unwise to rule it out completely.
