WPAC mainly citing further rate hikes expected from the Federal Open Market Committee and expectations of RBA hikes waning further
The December quarter CPI report...
- core inflation will remain at or below the bottom of the RBA's target band of 2.0%yr through 2018 (and 2019).
- This will see market expectations for a rate hike pushed further out from early 2019 currently. We remain of the view that the RBA will be on hold through 2018 and 2019.
Housing market is also unlikely to justify tighter policy anytime soon ...
- An unfolding slowdown in housing credit and caution amongst households towards the sector indicate price growth is unlikely to accelerate meaningfully in 2018.
Projects nearing completion will continue to add to supply
- a renewed downtrend in dwelling approvals suggests that the flow of new supply will taper
US:
FOMC's more confident tone at their January meeting was enough to cement expectations of a March rate hike.
- market is close to pricing in our own view, that a further two hikes will be delivered by September
- The main consequence for Australia is likely to be that our currency will depreciate from the current level around USD0.80 to USD0.72 at end-2018. However, a repricing of rate expectations outside the US based on the FOMC's progress and renewed financial market volatility are risks to watch out for.
China ...
- economy's momentum ... there is clear evidence that it is slowing, most notably due to weaker external demand (i.e. exports)
- A much reduced contribution from net exports will be a key reason why 2018 growth will slow to around 6.2% from 6.9% in 2017
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