There’s been a late flood of money for the well-credentialed Halfapercent in the feature race at Martin Place today. Halfapercent has tightened to very firm odds-on, although a couple of punters reckon a saver on the outside, Pointsevenfive, could be a late tip for the Rate Cut Cup at 2.30pm this afternoon. The track is fast, the weather is cool and overcast, with gusty winds, which helped board members arrive at today’s meeting a bit faster than expected.

So expectations are for a fast run race, with the previous smoky Quarterofapercent  unlikely to start because of no interest.

Nochange was an early scratching and yesterday’s data update with poor jobs figures, retail sales, manufacturing figures and the slump in house prices, showed the wisdom of connections withdrawing it last Friday.

So what’s the late form for Halfapercent, and its stablemate, A little bit more (AKA known as Pointsevenfive).

Well, after October’s shock win by One Percent, which got up on the rails at huge odds, every contender is seen being in with a chance, except Quarterofapercent and Sitting Pat.

One Percent was well bred: (Desperation out of Impending Crunch). Pointsevenfive is a three quarter blood brother to One Percent, being from that very good race mare, Cheaper Money, Now. (It’s by Leverage, out of Low Risk, from Boom, trained by M. Turnbull at Vaucluse).

Halfapercent is a full brother to One Percent, and is sure to go well at these odds, especially coming from the Stevens/Rudd Stable and being ridden by W. Swan.

So what do some of the country’s finest rate judges think?

Well, the leading Macquarie Bank handicapper, Rory Robertson says he will be “shocked by anything other than a 50bp cut, seeing it as something like a 90% prospect”:

I might end up being quite wrong, but I’m very surprised that Terry McCrann and others have put so much weight on the idea that Canberra’s fiscal policy is an impediment to near-term RBA cuts. After all, Canberra always eases fiscal policy when the Australian economy is threatened by recession.

Avoiding recession will not be easy, if it’s not already too late.

The race team at Merrill Lynch believes that fine duo, Confidence and Momentum have lost considerable form lately and that is costing the household sector considerable spending power; for that reason they are also looking for a 0.50% cut.

The full extent of the global financial crisis and mounting pressures on the household and business sectors are becoming clearer with each data point. While a more rapid RBA easing cycle will help improve the debt servicing burdens of households, we expect a long and deep adjustment in spending as income and balance sheet constraints persist, and the sector de-leverages. The job ads and house price data further highlight these income and balance sheet constraints on spending.

The data is consistent with the RBA cutting the cash rate by 50bp at the November board meeting tomorrow (with a risk of a larger cut). Confidence and momentum in demand growth is slipping quickly. In our view, monetary policy needs to be eased quickly as part of a broader policy response to the external growth shock and fundamental weakness in the household sector.

Goldman Sachs JBWere though reckons that while a saver on Pointsevenfive can’t be ignored, it won’t win, given the state of the track at the moment.

The trio of weaker-than-expected data demands an ongoing strong policy response and firms up the case for a larger than- usual 50bp rate cut this Tuesday. A cut of this magnitude was expected by 18 of the 19 private sector economists surveyed last Friday and is being fully priced in by the markets. We feel a larger cut is unlikely given the inflation-focused tone of RBA commentary in recent weeks.

Goldman Sachs are very gloomy about the future meetings:

We continue to forecast a technical recession over 2H 2008 and, taken as a whole, today’s data likely positions the risks to this forecast slightly to the downside. It is quite possible that retail sales volumes contracted for a third consecutive quarter in Q3 and, considering the other components of GDP, it is difficult to see where a meaningful positive offset will come from.

And, finally, Halfapercent has big support at UBS where the form analysts had this to say this morning:

Overall, today’s data likely starts a run of weak economic news for the Sep/Oct period reflecting intensification of the global financial crisis and lagged effects of previously tight monetary policy. While likely to show a deteriorating outlook for the economy, more important will be the subsequent data-flow over the following months in the wake of some improvement in credit markets and the impact of both the fiscal stimulus and lower cash rates. We continue to expect a 50bp cut from the RBA tomorrow and in December, taking the cash rate to 5.0% by year end.

Check back to the Crikey website after 2.30pm for Glenn Dyer on the RBA announcement.

Peter Fray

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Peter Fray
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