??Thursday 28 June 2012
- ?We would be delighted if a breakthrough in the euro sovereign debt crisis at the EU summit on Thursday and Friday were to make the Spanish 10-year bond risk premium spread to Germany redundant. But alas, while a credible plan to integrate the euro area economies’ fiscal policies and/or even a framework to establish a common euro bond may be enough to circuit-break the crisis, we don?t think the chances of it happening are high enough to retire that file just yet.
- In late morning trade on Thursday in Europe, Spain’s 10-year bond yields are once again lapping at the 7% pa level that was breached in the lead up to the result of the re-run of the Greek election almost two weeks ago.
- A fuller look at commodity prices will be incorporated into next week’s Snapshot to coincide with Monday’s publication by the RBA of its monthly index of commodity prices, but as coal and base metal prices fall, they both get a guernsey in this week’s edition. So too iron ore prices that are defying the slide in other commodities’ prices. And as long as iron ore prices hang in there, the RBA is not faced with the sort of precipitous across the board drop in commodity prices that necessitated the aggressive easing of monetary policy it delivered in late 2008/early 2009. ?Nevertheless, the risk of just that happening is markedly more than negligible.
- But not high enough to support the interbank cash futures market’s pricing of at least 75 basis points of cash rate cuts by Christmas. If the RBA doesn’t cut the cash rate next week – and even the futures market has scaled back its probability to around 25 per cent – a cut in August is more likely than not if the June quarter CPI is benign once again, which it probably will be. But unless the euro debt crisis gets significantly worse and/or commodity prices are threatening to fall off a cliff, the RBA will then probably wait for the effects of recent and prospective cuts to percolate through the economy before considering whether to take the cash rate down to or below the 3% pa it troughed at in the wake of the GFC.
WeeklySnapshot28June2012
