The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, August 11, 2010

Will unemployment print higher and the Fed embark on QE2?

First, Kieren Davies at RBS, who is highly regarded in the market for his fundamental analysis, has flagged that revisions to the population assumptions used by the ABS could result in lower-than-expected employment growth, and possibly an upward revision to the unemployment rate. Kieren comments:

"Recent employment growth should be revised down because it has been artificially boosted by the Bureau growing the survey’s population estimates at a more rapid rate this year in an effort to minimise its underestimation of the actual population...

The unemployment rate should broadly unaffected, although there is some chance it might be raised by 0.1pp. This is because the age groups underestimated in the survey have a slightly higher chance of being out of work than the rest of the population."

Second, Matt Johnson at UBS reckons that if the Fed surprises with a new bout of quantitative easing (QE2), it will be bearish for risk assets and bullish for bonds (ie, lower yields) in the immediate term. In contrast, NAB's Peter Jolly has noted that bond yields rallied in the months following QE1.

For mine, QE2 by the US Fed will be medium-term bullish for Aussie risk assets and bearish for bonds given that it can only support our growth prospects on a derivative basis. But the announcement of these new policy measures, combined with the recent downgrades to US GDP growth, will probably frighten the market and press a flight to safer assets in the short-term.

As a final aside, it is interesting to note the possibly coincidental tapering in global housing markets of late--the UK, Australia, and China have all experienced modest price falls in recent months. And there is talk that with the resetting of many US mortgages, the US may be in store for a double-dip.

A lot of the local leading indicator data looks weak, to say the least: very soft housing finance, business sentiment, business conditions, building approvals, disinflation in consumer prices, deflation in house prices, and the distractions posed by Europe and the US, the election and the RSPT...