Stagnant wages a concern
Miners pick up slack and bolster market
DIM outlook for wages growth and continuing worries about households overextending themselves to pay mortgages were key factors that convinced the Reserve Bank of Australia to leave official interest rates on hold in May.
Minutes from the RBA’s May meeting show bank board members are waiting to see what effects recent mortgage rate rises and regulatory clampdowns on lending will have on high housing-related debt levels before deciding on any shift in rates.
The central bank is also expecting only gradual improvement in the jobs market and a similarly sluggish rise in Australia’s low wage growth.
“The board continued to judge that developments in the labour and housing markets warranted careful monitoring,” the minutes noted.
The RBA left the cash rate unchanged at 1.5 per cent, continuing the holding stance it has held since a 0.25 per cent cut in August last year.
Reaction from economists and the markets was muted, with observers noting little change in the RBA’s language from its quarterly Statement THE share market has closed higher as gains by miners outweighed falls from two major banks that were sold off as they traded ex-dividend.
The benchmark S&P/ ASX200 gained 0.2 per cent, with falls by NAB and Macquarie Group offsetting gains posted across most sectors.
NAB dropped by $1.14, or 3.5 per cent, as it traded withA •On Site Catering •Rooms for 10 to 300 •Unique Meeting Spaces •World Class Entertainment •Audio Visual & Themeing •Conferences | Meetings • Gala Dinners • Events on Monetary Policy, released earlier this month.
Attention was focused on the bank’s mention of the labour and housing markets, with RBC’s head of ANZ strategy Su-Lin Ong saying the RBA had renewed the importance of the state of the jobs market.
“Having dropped an explicit reference to watching the labour market in the statement following the conclusion of the May board meeting, the minutes re-instated the April minutes reference,” Ms Ong said, noting the “careful monitoring” phrase in the minutes.
NAB economist Tapas Strickland said the RBA remained concerned any cut to rates to stimulate inflation and jobs could have the negative effect of boosting borrowing for housing and add to already risky household debt levels.
“Today’s minutes suggest the RBA could be willing to reconsider this trade-off should the labour market deteriorate, or housing risks diminish and unemployment remains elevated,” Mr Strickland said.
NAB expects official interest rates to remain on hold in this year and next, while CBA economist Kristina Clifton said the RBA was expected to keep rates steady “well into 2018”. out entitlements to its 99¢ per share interim dividend, while Macquarie dropped $1.91, or 2.1 per cent, as it traded without its $2.80 per share final dividend.
CBA and ANZ each gained 0.45 per cent and Westpac was 0.3 per cent stronger.
“The best performing sector is the materials after rallies in industrial and precious metals and energy overnight,” said CMC Markets chief market strategist Michael McCarthy.
BHP Billiton gained 0.8 per cent, Rio Tinto added 1.4 per cent and Fortescue Metals was 2.3 per cent stronger.
The energy sector rose early trade but lost most of those gains by the close, with Oil Search up 0.7 per cent, Woodside Petroleum up 0.15 per cent Santos down 0.3 per cent.
Among the best performers was Fairfax Media following TPG Capital and Canada’s Ontario Teachers’ Pension Plan Board’s latest bid.
Fairfax shares gained 3.1 per cent to $1.175, their highest level in six years. Qantas continued to rally after Moody’s on Monday upgraded the company’s credit rating, adding 2.9 per cent to $4.92.