Market Wrap – Risk appetite weakens

The market moves during the Asian session were fairly muted, although the spill over from yesterday’s negative US session was present as risk appetite remained muted.

The Australian dollar remained weakening after data showed approvals to build new homes in Australia fell by the most on record in January, with permits for private houses tumbling.

Also, Goldman Sachs added that another FOMC rate hike is likely, while both Nomura and NatWest also upped their rate forecasts also. Analysts at those two banks are now projecting a plus 50 basis points rate hike from the Fed at the meeting on the 21^st and 22^nd this month.

Breaking down the weak housing data in Australia, total dwelling approvals tumbled 27.6%, the most in records dating back to 1980, Australian Bureau of Statistics data showed Thursday.

Permits to build new private sector houses slumped 13.8%, marking the fifth straight month of declines and  the lowest since June 2012, underscoring the weakness in the sector.

Maree Kilroy, a senior economist at BIS Oxford Economics, said that more interest rate hikes will further weigh on demand noting that “The near-term outlook for residential building has continued to worsen over recent months,”

Inflation data yesterday was not that strong, however, the Australian central bank is currently in the midst of its most aggressive tightening in nearly two decades.

The RBA, having raised rates by 3.25 percentage points since May to a 10-year high. Recently, RBA Governor Philip Lowe recently said that policymakers had more work to do as inflation remains too high.

Due a variety of factors Australia’s residential construction industry has been hit by a combination of shortages of materials and labour, falling property prices and an unwinding of government subsidies that drove demand during the pandemic.

The housing problems in Australia could mean further rental inflation meaning that more hikes down the pipeline could continue to hit the residential market.