Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Third Consecutive 50, Housing Data Disappoints

Wednesday, 3rd August, 2022

Daily Flows

  • Yesterday was a day driven by investors remaining sceptical of what the RBA will do.
  • BBSW increased further, providing greater still returns to investors. 1Yr Swap remained just above 3%.
  • A domestic BBB offered extremely generous returns across the curve, offering 4.45% for a year, and 3.65% for 6 months.

RBA Hikes by 50 Basis Points

  • For the 3rd month in a row, the RBA hiked interest rates by 50 basis points.
  • Further, the RBA revised their inflation forecast to 7.75% this year, 4% next year and 3% in 2024.
  • The most important part of the release was the second last paragraph which read “A key source of uncertainty continues to be the behaviour of household spending. Higher inflation and higher interest rates are putting pressure on household budgets. Consumer confidence has also fallen and housing prices are declining in some markets after the large increases in recent years. Working in the other direction, people are finding jobs and obtaining more hours of work. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic. The Board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.”
  • As for what is to come, the RBA stated that “the board expects to take further steps in the process of normalising monetary conditions over the month ahead, but is not on a preset course”.
  • Many economists are now debating whether 25 or 50 basis points is likely in September.
  • Markets are currently pricing just over 25 basis points.

Housing Data Shows Slow Down

  • Yesterday’s housing data showed a big slow down in growth, coming in worse than expectations.
  • Home loans value dropped -4.40% MoM, Investor Loan Value -6.30% and Owner-occupied Loan Value -3.3%.
  • Rising interest rates and inflation is starting to take its toll on the housing market, as households and investors remain weary of the outlook. Builders are suffering from higher input prices, which is driving home owners away for the time being.

Nicholas Allan

Senior Associate