Rates expected to stay on hold at today's RBA meeting


The RBA will announce its November rates decision at 2.30pm today. We expect no change to the cash rate and expect it to remain at 2.50% well into 2014.

Retail sales rose by a larger than expected 0.8% in September. Yesterday's data suggests the lift seen in consumer sentiment is starting to flow through to actual spending.

The annual pace of retail sales growth lifted to 2.9% in the year to September.

Quarterly retail sales volumes were also stronger than expected, rising 0.7% in the September quarter. For the year to the September quarter retail sales volumes rose 2.2%.

The gain in retail sales in the September quarter suggests household consumption will make a positive contribution to GDP growth in Q3.

ABS house prices rose 1.9% in the September quarter to be up 7.6% over the year. The pace of growth across different States and territories was divergent, with Sydney house prices up 3.6% in the quarter, while Canberra house prices fell 1.2% in the quarter.

ANZ job ads slipped 0.1% in October, after rising 0.2% in September, suggesting job ads may have started to stabilise.

Further softness in employment growth is still likely however, given earlier weakness in job ads. For the year to October, job ads are down 11.6%.

The TD-MI inflation gauge rose 0.1% in October. For the year to October, the annual rate of inflation held at 2.1% for the third consecutive month.

Share Markets:

US equity markets rose overnight but the mood was cautious with the Dow down for a large portion of the session.

US economic results were mixed and the market remains concerned about the timing of US bond purchase tapering.

European markets were also modestly firmer overnight.


Australian bond yields moved higher yesterday on the back of firm retail sales data and possibly due to awareness that a tapering of US bond purchases will occur.

Three year Australian government bond yields rose 8 basis points to 3.13% while 10 year yields rose 7 basis points to 4.14%. 

In the US overnight, bond yields were marginally lower and they were little changed in Europe.

Foreign Exchange:

The USD index softened overnight hence the AUD is firmer against the USD this morning. The mixed data suggests that the US will not taper its bond purchases in the very short term.


Copper prices were down overnight as US factory orders were not as strong as the market had been expecting (see below).

After declining for a week, oil prices nudged higher overnight but remain at their lowest levels since June. Gold was little changed overnight.


The Eurozone Sentix index of investor confidence rose to a two and a half year high in November at 9.3 after falling slightly in October to 6.1 from September's two year high at 6.5.

The Eurozone factory PMI was unrevised at 51.3 in October with a downward revision to France (49.1) offsetting an upward revision to Germany (51.7).

United Kingdom:

The UK construction PMI rose from 58.9 to 59.4 in October, a new post-recession high.

This is further evidence that measures to boost housing activity by subsidies for lenders and borrowers are having an impact.

United States:

US factory orders rose 1.7% in September after falling 0.1% in August and a 2.8% decline in July.

The variability of the recent monthly results suggests only tepid recovery in the US.

US New York ISM current business conditions index rose from 53.6 to 59.3 in October, reversing most of September's fall from 60.5. The detail showed stalled jobs at 50.3, a 3.4 point fall in purchases to 42.9 but improved revenues, up 4.8 points to 52.1.

The mix of numbers will discourage the Fed's desire to taper its bond purchases but they will be encouraged by the top-line outcome.

A range of Fed officials spoke yesterday. The consistent message was that the US bond purchase program cannot continue indefinitely and that tapering of bond purchases is dependent upon the US achieving sustainable growth.

Tapering will occur in due course.