Rate rise no longer looms? Wall Street held its nerve and bounced higher right through to the end of trading this morning, unlike the day before, when its nerve failed in the last hour. But there was an easy explanation for this new confidence — a very senior Fed official pouring a large jug of cold water on the chances of a rate rise in September and perhaps for the rest of 2015. New York Fed President William Dudley said in a pre-trade briefing:

“The bottom line: we have been assessing domestic and international financial markets closely in terms of their implications for the US economic outlook and we will continue to do so. From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago … What we’re seeing is not a US problem. This is very different to the financial crisis. The financial crisis was very much about us. This isn’t about us.”

Dudley says his view could change by the time of the Fed meeting on September 16 and 17, but it all depends on what happens in financial markets (and especially inflation). Another view from the upper levels of the Fed comes in the next day or so at the Jackson Hole Conference, where vice-chair Stanley Fischer is due to speak. — Glenn Dyer

Boom, boom redux? Dudley’s retreat on the rate rise timing was gold to US investors searching for a reason to buy, buy, buy, which they did, did, did. So, by the close, the Dow’s 620-point rise and the S&P 500’s 72-point gain were the third-biggest ever. But in percentage terms (3.95% for the Dow and 3.93% for the S&P 500), it was only the 154th largest for the S&P and the 136th largest for the Dow. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said the rebound added US$643 billion back onto the S&P 500’s market value, but the Index was still light US$1.4 trillion thanks to un-regained losses over the past seven trading sessions. So what are the chances of a repeat tonight? It all depends on what is happening in China and the Shanghai market as you read this. — Glenn Dyer

Housing, the real policy problem. While the great, good worthy and less than worthy were chattering away at the faux summit in Sydney yesterday organised by The Australian Financial Review and The Australian, Australia’s key economic and financial threat was being highlighted at another Sydney conference by Wayne Byers, the head of APRA, the key financial regulator. His speech homed in on the central risk to the financial system and the economy — our growing over-dependence on housing. Byers told the conference:

“Housing lending now accounts for around 40% of banking industry assets, and a little under two-thirds of the aggregate loan portfolio. With such a concentration in a single business line, we are all banking on housing lending remaining ‘as safe as houses’ … The environment in which housing lenders operate is one of heightened risk; and there is reason to conclude that housing portfolio risk profiles might have increased, and underwriting standards softened, over time … We are also in an environment of subdued income growth. Household income growth has been relatively low over the past couple of years, and is now broadly in line with underlying inflation — implying minimal growth in real terms, and limited capacity to support significantly higher debt levels.”

That’s regulator code for “we are more than a bit worried” (even though we have taken steps to slow the rate of growth in housing loans and hopefully the price bubblettes in Sydney and Melbourne). — Glenn Dyer