Is that a rate rise I see? Yes, it is, said US Fed chair Janet Yellen this morning in a speech in the US as she tried to settled jangled nerves, fractured bank accounts and nervy investors in the wake of the Fed’s decision a week ago not to lift interest rates. And to further drive home her point, she told her audience (in a speech all about inflation, but really it was about that rate rise) that the increase was still on for 2015. So that leaves two Fed meetings: October and December. The pre-Christmas two-day meet is the tip, with its new slate of economic forecasts and the post-meeting media conference with Yellen. In her speech this morning (our time) Yellen had this to say about the timing of the rate rise. December sounds likely. Merry rate rise everyone?
“Prospects for the U.S. economy generally appear solid. Monthly payroll gains have averaged close to 210,000 since the start of the year and the overall economy has been expanding modestly faster than its productive potential. My colleagues and I, based on our most recent forecasts, anticipate that this pattern will continue and that labor market conditions will improve further as we head into 2016.”
So it’s “Rate rise looms” all over again?
Overnight we saw surprise rate cuts by central banks in Taiwan (the first cut since 2011) and Norway (out of the blue). The central bank of Israel sat on rates. Data elsewhere was mixed — a rise in investor confidence in Germany, but that was taken before the VW emissions scandal broke. That has now spread to Europe, according to a statement from VW overnight. — Glenn Dyer
Caterpillar’s stunning message. Caterpillar, the giant construction equipment group, had a big message to the Fed, the global mining, energy and construction industries, and to employees overnight: it’s looking to chop 10,000 or more of its staff in the next couple of years as it cuts manufacturing space by 10% and revamps itself at a cost of between US$1.5 billion to US$2 billion. Caterpillar said it now expects weakening demand from resource and construction companies will continue to drive down sales of its heavy equipment and it now expects 2015 revenue to be about US$48 billion — US$1 billion lower than its previous forecast (and down 27% from a peak of nearly $66 billion in 2012). And it said 2016 revenue likely would fall another 5% from this year (close to US$2.5 billion), which would be the first time in Caterpillar’s 90-year history that sales declined for four years in a row. That, in turn, is bad news for Kerry Stokes and his Seven Group Holdings which is a major Caterpillar distributor and services group in Australia and north-east China. — Glenn Dyer
Good news for the RBA and other regulators. The flash point in every property bust for Australian banks is to be found in the financing of commercial building, office blocks, nursing homes, etc — not home mortgages. And in commercial there’s no sign of a surge in vacancies and an eventual collapse of the boom and bad debt headaches for the banks (as we saw in the early 1990s). According to Brickworks, there was an 18.7% fall in the value of approvals in the non-residential sector in Australia to $29.45 billion for the 12 months to July 31, 2015.
“Within the nonresidential sector, Commercial building approvals decreased by 23.4% to $11.194 billion for the period and Industrial building approvals decreased 16.4% to $4.248 billion. The Educational sub-sector, an important driver for bricks and masonry demand, was down 21.8% to $3.667 billion.”
And the latter is further confirmation that the public sector has not helped the economy’s transition by at least maintaining a constant level of spending on new schools and other education facilities. So much for all the guff about being an “infrastructure government”. — Glenn Dyer