Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

<ul><li>In what was close to a line ball decision - according to market economists surveyed and Interbank Cash Rate Futures - the RBA Board cut the official cash rate (OCR) by 25 basis point cut to 1.75% at its May meeting.  Strong disinflationary forces evident in the March quarter CPI print would have tilted the central bank's view on the outlook for the economy and interest rates.   With the RBA Governor’s ten year term set to expire in September, Evidente believes Mr Stevens does not want to leave his legacy as the reluctant rate cutter while underlying inflation in Australia fell to a record low.   </li><li>Even with the overdue monetary stimulus delivered, Australia's cash rate of 1.75% remains well above other advanced economies.  A comparison of Australia and the United States helps put things in perspective.  Australia's annual core inflation rate is now lower than in the US, while the unemployment rate of 5.8% has been higher than the US for a while now.  But the cash rate is 150 basis points above the federal funds rate!</li><li>The economy is suffering from deficient demand and more monetary stimulus is necessary to revive animal spirits in the corporate sector.  A policy rate of 1.75% is too high given monetary developments across advanced economies and Australia's disinflation.  As long as the RBA and APRA are satisfied that lending standards for housing remain prudent, Evidente expects the central bank to deliver another rate cut this year, most likely in August.</li></ul>

In what was close to a line ball decision - according to market economists surveyed and Interbank Cash Rate Futures - the RBA Board cut the official cash rate (OCR) by 25 basis point cut to 1.75% at its May meeting.  Strong disinflationary forces evident in the March quarter CPI print would have tilted the central bank's view on the outlook for the economy and interest rates.   With the RBA Governor’s ten year term set to expire in September, Evidente believes Mr Stevens does not want to leave his legacy as the reluctant rate cutter while underlying inflation in Australia fell to a record low.   Even with the overdue monetary stimulus delivered, Australia's cash rate of 1.75% remains well above other advanced economies.  A comparison of Australia and the United States helps put things in perspective.  Australia's annual core inflation rate is now lower than in the US, while the unemployment rate of 5.8% has been higher than the US for a while now.  But the cash rate is 150 basis points above the federal funds rate!The economy is suffering from deficient demand and more monetary stimulus is necessary to revive animal spirits in the corporate sector.  A policy rate of 1.75% is too high given monetary developments across advanced economies and Australia's disinflation.  As long as the RBA and APRA are satisfied that lending standards for housing remain prudent, Evidente expects the central bank to deliver another rate cut this year, most likely in August.

The Reluctant Rate Cutter Reflects on His Legacy

FX Strategist

Greg Gibbs

Fundamental analysis of topical themes in FX

Amplifying Global FX Capital

Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is a licensed in Australia to provide financial services.

We are producing a regular trading view orientated macroeconomic analysis of topical themes in global financial markets, with a particular focus on foreign exchange. We invite you to view an “executive summary” of these reports in “AmpGFX Reports” under our “Research” menu.

These reports are drawn from the analysis of Greg Gibbs and inform the capital management he undertakes on behalf of the company. The trading performance is posted periodically on our website. We aim to build our company into both a research and capital management business. We are currently in the planning phase for managing capital for wholesale customers.

Greg Gibbs has spent his working life of more than 26 years in financial markets, beginning in 1989 at the Reserve Bank of Australia, after completing a Bachelor of Economics Degree (Honours) at the Australian National University. He has been a CFA Charterholder since 2005. He has worked in Sydney, Singapore, New York and London for major global banks and presented on foreign exchange markets to major financial institutions and companies around the world, and maintained a high profile in the financial media.

Before Amplifying Global FX Capital, Greg was the Head of Asia Pacific Market Strategy at the Royal Bank of Scotland based Singapore. He now resides in Breckenridge Colorado.

We think the case is clear for the RBA to cut rates tomorrow and are predicting this outcome.  The much lower core inflation reading, evidence of tightening bank credit conditions, some softening recently in credit growth, cooler job vacancies, a stronger AUD, some renewed doubts on China and timing of the 2 July election suggest the RBA needs to be decisive and get ahead of expectations.  Consequently we see further weakness in the AUD and continue to favour gold as we discussed last week outlining risks in China that may spill over to global asset markets and the rebounding JPY that may push the BoJ toward more easing.

We think the case is clear for the RBA to cut rates tomorrow and are predicting this outcome.  The much lower core inflation reading, evidence of tightening bank credit conditions, some softening recently in credit growth, cooler job vacancies, a stronger AUD, some renewed doubts on China and timing of the 2 July election suggest the RBA needs to be decisive and get ahead of expectations.  Consequently we see further weakness in the AUD and continue to favour gold as we discussed last week outlining risks in China that may spill over to global asset markets and the rebounding JPY that may push the BoJ toward more easing.

<ul><li>The CPI print revealed that disinflationary forces intensified in Australia in the March quarter.  Underlying inflation posted a quarterly rise of only 0.18%, the smallest increase since the inception of the series in 1982.  As a result, underlying inflation rose by only 1.5% in the past four quarters, which also represents the smallest annual increase on record.</li><li>The record low inflation outcome will cause a headache to RBA Governor, Mr Glenn Stevens.  He has developed a reputation as the reluctant rate cutter, having recently re-iterated his view that the potency of monetary policy is diminished at low rates of interest and endorsing structural policies to boost growth. </li><li>But the growing shortfall in aggregate demand implied by the record low March quarter CPI print points to the prospect of weaker labour market conditions.  Surely the role of a central bank is to revive animal spirits when the psychology of risk taking is muted?  With underlying inflation now 50 basis points below its target, Evidente re-iterates the view that the RBA Board should deliver another rate cut at its next meeting on May 3rd.</li></ul>

The CPI print revealed that disinflationary forces intensified in Australia in the March quarter.  Underlying inflation posted a quarterly rise of only 0.18%, the smallest increase since the inception of the series in 1982.  As a result, underlying inflation rose by only 1.5% in the past four quarters, which also represents the smallest annual increase on record.The record low inflation outcome will cause a headache to RBA Governor, Mr Glenn Stevens.  He has developed a reputation as the reluctant rate cutter, having recently re-iterated his view that the potency of monetary policy is diminished at low rates of interest and endorsing structural policies to boost growth. But the growing shortfall in aggregate demand implied by the record low March quarter CPI print points to the prospect of weaker labour market conditions.  Surely the role of a central bank is to revive animal spirits when the psychology of risk taking is muted?  With underlying inflation now 50 basis points below its target, Evidente re-iterates the view that the RBA Board should deliver another rate cut at its next meeting on May 3rd.

Will Someone Pass the Panadol to Mr Stevens Please?

The much lower than expected underlying inflation measures in Australia, evidence of an ebbing housing market and rapidly approaching national election on 2 July make the case for a rate cut by the RBA next week.  This is likely to keep the AUD on a weak footing.  The AUD had already started to look toppy ahead of the inflation data, facing significant resistance around 0.78 and perhaps starting to respond to evidence of financial stress in China.  The rebound in USD/JPY also appears to have spilled over into profit-taking sales in AUD against JPY. We have noted several significant risk factors for the AUD this year; including a tightening election race, opposition policy to significantly cut tax breaks for property investors, bank share prices struggling, banks tightening credit for housing, and a looming over-supply in apartments at the same time as banks are specifically tightening credit for this sector.  Low rate policies abroad are providing some support for the AUD, but in consideration of its elevated and rising risk factors we see further upside in Gold/AUD.

The much lower than expected underlying inflation measures in Australia, evidence of an ebbing housing market and rapidly approaching national election on 2 July make the case for a rate cut by the RBA next week.  This is likely to keep the AUD on a weak footing.  The AUD had already started to look toppy ahead of the inflation data, facing significant resistance around 0.78 and perhaps starting to respond to evidence of financial stress in China.  The rebound in USD/JPY also appears to have spilled over into profit-taking sales in AUD against JPY. We have noted several significant risk factors for the AUD this year; including a tightening election race, opposition policy to significantly cut tax breaks for property investors, bank share prices struggling, banks tightening credit for housing, and a looming over-supply in apartments at the same time as banks are specifically tightening credit for this sector.  Low rate policies abroad are providing some support for the AUD, but in consideration of its elevated and rising risk factors we see further upside in Gold/AUD.

AmpGFX - Elevated and Rising Risk Factors for AUD

The BoJ’s deep throat policy makes sense this time around after the shock tactics back-fired in January.  The market is being massaged to expect comprehensive easing including a further rate cut aimed at a weaker JPY.  This time around expect most of the action ahead of the BoJ meeting next week.  JPY may weaken near term, but will face significant resistance toward 115 and may be volatile after the meeting with little net new direction.  We continue to see market risks building in China; weak corporate bonds, rising yields, steadily declining CNY against its basket, steady capital outflow and lagging equities.  AUD has been boosted by iron ore and oil, but is diverging recently and may also be reflecting constrained confidence in China, notwithstanding recent improvement in economic activity.  We had returned our focus to long gold in recent days, but it may work better against a short JPY position.

The BoJ’s deep throat policy makes sense this time around after the shock tactics back-fired in January.  The market is being massaged to expect comprehensive easing including a further rate cut aimed at a weaker JPY.  This time around expect most of the action ahead of the BoJ meeting next week.  JPY may weaken near term, but will face significant resistance toward 115 and may be volatile after the meeting with little net new direction.  We continue to see market risks building in China; weak corporate bonds, rising yields, steadily declining CNY against its basket, steady capital outflow and lagging equities.  AUD has been boosted by iron ore and oil, but is diverging recently and may also be reflecting constrained confidence in China, notwithstanding recent improvement in economic activity.  We had returned our focus to long gold in recent days, but it may work better against a short JPY position.

AmpGFX - BoJ's Deep Throat and China Market Risks Make Way for Higher Gold/JPY

Australia

iShares MSCI Australia ETF is an exchange-traded fund incorporated in the USA. The ETF tracks the performance of the MSCI Australia Index. The ETF holds predominantly large-cap stocks from Australian companies. The ETF weights the holdings using a market capitalization methodology and rebalances quarterly.

iShares MSCI Australia (EWA US)

The Reluctant Rate Cutter Reflects on His Legacy

In what was close to a line ball decision - according to market economists surveyed and Interbank Cash Rate Futures - the RBA Board cut the...

Sam Ferraro

AmpGFX - RBA Cut the Obvious Decision

We think the case is clear for the RBA to cut rates tomorrow and are predicting this outcome. The much lower core inflation reading, evidence of...

Greg Gibbs

Will Someone Pass the Panadol to Mr Stevens Please?

The CPI print revealed that disinflationary forces intensified in Australia in the March quarter. Underlying inflation posted a quarterly rise of...

Sam Ferraro

AmpGFX - Elevated and Rising Risk Factors for AUD

The much lower than expected underlying inflation measures in Australia, evidence of an ebbing housing market and rapidly approaching national...

Greg Gibbs

AmpGFX - BoJ's Deep Throat and China Market Risks Make Way for Higher Gold/JPY

The BoJ’s deep throat policy makes sense this time around after the shock tactics back-fired in January. The market is being massaged to expect...

Greg Gibbs