Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.

Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;

David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;

“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;

[smartcode_project:default project_id=110291 project_image_fid=302785]

<h2>Affordable product leads, premium demand remains resilient</h2>

Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;

Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;

At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.

Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.

Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;

[smartcode_project:default project_id=148957 project_image_fid=364102]

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.

David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.

“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;

Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.

[smartcode_project:default project_id=108869 project_image_fid=317905]

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;

Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;

However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.

Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;

Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.

The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.

Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.

“Brisbane was the right step for Sammut,” Sammut said.

“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" />

Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.

The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.

“We are DA approved now which is very exciting,” Sammut said.

“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" />

Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.

“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.

The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.

“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”

The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.

The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.

Sammut secures approval for debut Brisbane apartment development in Toowong

Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.

Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.

The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.

“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.

“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.

“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”

The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.

“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”

From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.

“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”

The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.

“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.

Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.

“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.

“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”

The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.

“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.

Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.

&nbsp;

Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

Interest Rates

<html><body>
New data has found a growing proportion of borrowers are seeking the security that comes with a fixed rate home loan, according to the latest national home loan approval data from Mortgage Choice.
Fixed rate home loans accounted for 22 percent of all loans written in December, up from 19.5 percent in the month prior.
“This is the fourth consecutive month that we have seen fixed rate demand increase,” Mortgage Choice chief executive officer John Flavell said.
“With speculation mounting that the Reserve Bank of Australia could soon lift the official cash rate, it is clear that a growing proportion of borrowers wish to beat any potential rate hikes by opting for a fixed rate home loan.”
Mr Flavell said current market conditions combined with a spate of rate increases by Australia’s lenders meant a rate rise by the Reserve Bank this year was now more likely than not.
“In December, the United States’ Central Bank announced it would increase the Federal Funds rate by 25 basis points to 0.75 percent.
Furthermore, the bank indicated that the Federal Funds rate could rise by a further 75 basis points throughout 2017 – through three separate rate increases.
“Closer to home, many of Australia’s lenders have already started to raise rates across their suite of home loan products.
In addition, the Reserve Bank of Australia has stated that the time for easing the monetary policy setting has now passed.
All of these factors combined would suggest that a rate increase by the Reserve Bank could be right around the corner.
“Borrowers understand this and that is why a growing proportion of mortgage holders are opting for fixed rate products.”
<a href="https://www.propertyobserver.com.au/images/2017/01/09/variable_rate.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/09/variable_rate.jpg" alt="">
Across the country, fixed rate demand was highest in New South Wales, with this type of product accounting for 27.34 percent of all loans written throughout the month of December.
“Queensland wasn’t far behind, with fixed rate home loans accounting for 24.64 percent of all loans written within the state.
At the other end of the spectrum, fixed rate demand was lowest in Victoria, with this type of product making up just 12.69 percent of all home loans written,” he said.
“Looking ahead, I wouldn’t be surprised to see fixed rate demand continue to rise across most of the states as a growing proportion of borrowers look to beat the threat of rising rates.”
<table style="width: 403px;" border="1" cellspacing="0" cellpadding="0" align="left"><tbody>
<tr>
<td nowrap width="101">
 
 
</td>
<td colspan="2" nowrap width="56">
NSW/ACT
</td>
<td colspan="2" nowrap width="60">
VIC/TAS
</td>
<td colspan="2" nowrap width="60">
QLD
</td>
<td colspan="2" nowrap width="60">
SA/NT
</td>
<td colspan="2" nowrap width="67">
WA
</td>
</tr>
<tr>
<td colspan="2" valign="bottom" nowrap width="115">
 Variable
</td>
<td colspan="2" valign="bottom" nowrap width="56">
72.66%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
87.31%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
75.36%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
84.45%
</td>
<td valign="bottom" nowrap width="52">
83.91%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="101">
Basic Variable
</td>
<td colspan="2" valign="bottom" nowrap width="56">
9.76%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
16.04%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
25.14%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
33.53%
</td>
<td colspan="2" valign="bottom" nowrap width="67">
15.66%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="101">
Standard Variable
</td>
<td colspan="2" valign="bottom" nowrap width="56">
10.74%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
21.01%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
7.17%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
13.77%
</td>
<td colspan="2" valign="bottom" nowrap width="67">
13.42%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="101">
Ongoing Discount
</td>
<td colspan="2" valign="bottom" nowrap width="56">
46.96%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
43.43%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
36.61%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
32.59%
</td>
<td colspan="2" valign="bottom" nowrap width="67">
51.52%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="101">
Line of Credit
</td>
<td colspan="2" valign="bottom" nowrap width="56">
1.32%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
1.58%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
0.61%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
1.03%
</td>
<td colspan="2" valign="bottom" nowrap width="67">
0.86%
</td>
</tr>
<tr>
<td valign="bottom" nowrap width="101">
Introductory Rate
</td>
<td colspan="2" valign="bottom" nowrap width="56">
3.88%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
5.25%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
5.83%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
3.53%
</td>
<td colspan="2" valign="bottom" nowrap width="67">
2.45%
</td>
</tr>
<tr>
<td colspan="2" valign="bottom" nowrap width="115">
 Fixed
</td>
<td colspan="2" valign="bottom" nowrap width="56">
27.34%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
12.69%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
24.64%
</td>
<td colspan="2" valign="bottom" nowrap width="60">
15.55%
</td>
<td valign="bottom" nowrap width="52">
16.09%
</td>
</tr>
</tbody></table>
 
</body></html>

j.ballantyne1990-6AQqhLzZaK

Fixed rate home loan demand surges again

<html><body>
GUEST OBSERVER
As we head into 2017, there are many reasons to view prospects with distinct nervousness.
Will the new US president follow through with his isolationist and protectionist rhetoric from the campaign trail?
How will growing populism affect the outcome of key eurozone elections, and particularly the French presidential vote?
There are huge uncertainties facing the UK over its Brexit negotiations and the medium-term growth outlook.
Moreover, very real challenges are facing certain emerging markets, particularly those with high external debt levels and now suffering from currency depreciation.
All these give real cause for concern. However, some things are going in the right direction, at least for now. Global PMIs are at their highest level for more than a year.
The US economy is robust enough for the Fed to have just carried out its second interest rate increase this decade.
Growth in China has held up remarkably well, defying financial market concerns at the start of 2016. Inflation, long thought dead, is showing signs of stirring, albeit thanks to higher oil prices and varying degrees of FX depreciation.
And fiscal measures are supplementing monetary support in many key economies, led by the US where a reflation trade is confidently underway in the expectation of broad-ranging tax cuts and higher spending.
All of the above help explain why this quarter we can offer a rare treat: for the first time since early 2012, we are increasing our forecasts for both global growth and inflation for the next two years. Unfortunately, it is still a world where global growth is likely to hover around the mediocre growth rates of the past few years.
The Trump factor Political shocks typically mean uncertainty about the future direction of policy and a negative impact on investor sentiment. Not this time.
Since the election of Donald Trump as US president, global markets have taken a clear view on what it means for policy and the real economy. Concerns raised before the election over Mr Trump’s campaign pledges – such as protectionism and limits on immigration – have been put on the back-burner, even though they could change the world order in unpredictable ways.
For now the mood is firmly risk on. Equity markets have rallied. Bond markets have sold off and the dollar has strengthened across the board. Signs of cyclical improvement evident in the global economy survey data before the election have largely been confirmed and the expectation of a sizeable fiscal stimulus and lighter-touch regulation have added to the optimism.
The first positive prints for China’s producer price inflation since early 2012 and the first deal between OPEC and non-OPEC producers to cut oil supply for 15 years, pushing oil above USD55/barrel, are the icing on the cake for the reflation flag wavers.
Some of this buoyancy is justified. We recently revised up our US growth forecasts for 2017-18 on the expectation that the Republican Congress will back some degree of tax cuts for US households and companies.
European growth is also expected to be stronger than had seemed likely in the immediate wake of the UK’s Brexit vote.
Expectations may be getting too high though. An upturn in the global industrial cycle does not tell us much about long-term growth prospects. Nor do we doubt the ability of fiscal stimulus to support near-term demand.
If it does not raise long-term nominal growth by supporting other structural policies to improve productivity then it might just mean larger deficits that keep adding to government debt stocks.
So, while expansionary fiscal policy may erode spare capacity and mean the Fed can raise rates a little more quickly (we expect two rate rises in 2017, rather than the one we previously envisaged), the jury is still out on whether the incoming US administration’s policy mix will raise long-term potential growth and the historically low natural rate of interest.
Even in the near term there could once again be constraints on the Fed. The election of Donald Trump may have been a vote in favour of more isolationist policies but the US is not (yet!) a closed economy and Fed policy will continue to be influenced by developments elsewhere.
US headline inflation will rise in the coming months as higher oil prices feed through and nominal wage growth should tick up slightly, but we expect the strong dollar to keep down import prices and therefore core goods prices. In the other large developed economies, signs of cyclical improvement do not alter the deflationary influence that the eurozone and Japan still exert: internal imbalances and external surpluses are still too large and wage settlements too low.
Political risk in the coming year will focus on the eurozone, given the elections in some of its key economies: the Netherlands, France and Germany and, possibly, Italy.
There is also a pressing need for EU institutions to take decisions to address the population’s primary concerns of immigration and terrorism, ideally through joint budgetary spending on defence. But with the ECB having now extended QE until at least the end of 2017 and a very welcome bout of yen depreciation having taken the pressure off the Bank of Japan to step up its monetary easing any time soon, the immediate monetary policy risks will focus on EM.
Given the broad-based currency declines since the US election, emerging economies with high external debt and a high degree of foreign participation in local bond markets are most vulnerable to a rise in debt service costs and capital outflow as US rates rise.
Even for countries that have less foreign-currency-denominated debt but which are still reliant on credit growth, a slightly more active Fed and a stronger dollar imply less ability for many EM central banks to provide support through monetary policy.
We believe Brazil’s central bank will now be able to deliver less easing than previously seemed likely.
Many of the rate cuts we had been forecasting in Asia have been removed, while Turkey has already started a rate-rising cycle we did not envisage three months ago. Nor can emerging markets really pin their hopes on a big boost to competitiveness from the currency as exchange rate weakness has been broadly based across EM.
They must be hoping there will be some kind of lift from stronger US demand. The main boost on the demand side is likely to be to the US consumer from the planned tax cuts. To some extent the boost to disposable incomes will be offset by the rise in oil prices and a small rise in debt service costs but at least the US consumer has undergone so much deleveraging and now holds far fewer adjustable rate mortgages that the impact of modest rate rises should be limited and slow to come through.
Nonetheless the US will be a long way from regaining its former title of the world’s consumer of last resort. The US now accounts for a much smaller share of global demand than it did over a decade ago and its high income level and ageing population mean that more than two-thirds of US consumer spending is now on services. There will also be the risk of protectionist measures being put in place, particularly if the dollar continues to strengthen and the US current account deficit widens significantly in the coming year. Fed will still be constrained by global developments Political risk in Europe USD strength and higher rates puts the focus back on EM Mixed blessings for the US consumer.
Despite the clear risks for many emerging countries in the near term, the emerging market growth story is far from over given its superior long-term growth potential. In this report, we have re-visited the projections made for emerging economies in 2010 in our World in 2050, 11 January 2012 report. China, India and Indonesia are the main countries that have surpassed our estimates of growth potential. The rest under-delivered and, as in much of the developed world, disappointing investment growth has been a big part of the reason.
Demographics still look better in most EM countries though and other key drivers of future growth – notably education levels and life expectancy – have improved. This implies that potential per capita growth rates are still fairly high. As these countries develop and the nature of growth becomes more domestically driven, the influence on developed markets may pick up once more.
Emerging market crises of one sort or another will no doubt feature from time to time in the coming decades, as will unpredictable political developments. But these countries should continue to gain in importance in terms of their share of global demand.
Turning to our actual growth forecasts, we have raised our developed world forecasts more or less across the board. Aside from the US, the biggest upgrades are in the UK (smaller nearterm damage following the Brexit vote) and Japan, but there also seems to be a bit more momentum in the eurozone, particularly Germany and Spain.
In the emerging world, the revisions are mainly downwards, with the main exception of China where the recent run of data have revived and we believe an additional bout of public spending will maintain growth at 6.5 percent in 2017-18. In India, there is a near-term hit to growth from the government’s decision to abolish the existing stock of high-denomination currency notes.
The other notable revisions are in Latin America due to weaker-than-expected recent activity data and the reduced scope for monetary easing in the face of currency depreciation.
The full report can be downloaded <a href="https://www.gbm.hsbc.com/insights/economics" target="_blank">here</a>.
Janet Henry is Global Chief Economist at HSBC and can be contacted <a href="https://www.hsbc.co.uk/1/2/" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

US economy robust enough to take interest rate increase: HSBC's Janet Henry

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Much like the final episode for a soap opera where the viewers are left waiting in the balance to know the outcome for the December quarter GDP.
Nobody saw this coming although for some strange reason I welcomed the result simply because it sent a firm message to Canberra to start doing something. Over the past six years all the federal government has done in terms of property prices is to pour more accelerants on the investment and established housing markets.
Despite tighter lending requirements being introduced in late 2014, Sydney real estate has continued to run amok climbing another 13.1 percent in the year to November. When you analyse the data over the last four years prices are up 60 percent and still increasing. What we do know with the current market is that prices are being driven by record low stock levels (see graphs below) marinated with record low interest rates.
As a result, we now see new data where the percentage of first home buyers in the owner – occupier market has plummeted to the lowest levels in twenty – five years. The banks internal data obviously has them concerned where over the past week they have raised the rates for interest only loans so they are now obviously starting to give the tree an almighty shake. It must also be noted that recently the banks stopped lending to Asian buyers in the off – the – plan markets although not much was said when these announcements were made.
 
Australian Treasury have just released a Working Paper – Foreign Investment and Residential Property Price Growth where they found there is absolutely no link to foreign buyers and high residential price growth. I wonder what market they are looking at when we see that Sydney house prices are up 60 per cent over the last four years. Maybe Treasury should ask the banks the reasons why they stopped lending?
Of course, they did not mention those Significant Investor Visas (SIV) which came into force on 24 November 2012 – aimed at attracting China’s super wealthy – China accounts for 89.9 per cent of SIVs issued. Since the introduction approximately 1600 SIVs have been issued for foreign applicants prepared to spend $5.000 million on complying investments. After a period of four years the applicants are eligible for permanent residency. The federal government is aware of recent reports that outlined that around 60,000 Chinese millionaires want to invest in Sydney and Melbourne.
The question I then put to the Prime Minister: Sydney and Melbourne are the two hottest property markets in Australia – why does he feel the need to further drive these markets by allowing 100 per cent of off – the – plan properties to be marketed offshore and why, do we need SIVs in the first place? If he were to cut off – the – plan from 100 per cent to 50 per cent and then shut – down the SIVs then we would start to see the property markets easing. Real estate agents will hate me for suggesting such a recommendation but I can live with that.
Whilst we are making much needed changes to the Australian property landscape it’s also high time investors had a cap on the number of properties they can own. With the Prime Minister’s popularity in the polls plummeting why not, introduce a Land Bank Tax and then get those 100,000 empty apartments in Sydney leased out to the market as they should be.
Now should you require further convincing please take a moment to analyse the following data that was extrapolated from pricefinder and compiled by our own RWM Research as at 1 December 2016. It certainly paints a very ugly picture that requires immediate action.
Mosman houses first then apartments below – 1998 to 1 December 2016.
<a href="/images/2016/12/09/RWM-Research-Mosman-Houses-Apartments.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/09/RWM-Research-Mosman-Houses-Apartments.png" alt="">
Source: RWM Research and pricefinder
Cremorne houses first then apartments below – 1998 to 1 December 2016.
<a href="/images/2016/12/09/RWM-Research-Cremorne-Houses-Apartments.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/09/RWM-Research-Cremorne-Houses-Apartments.png" alt="">
Source: RWM Research and pricefinder
Neutral Bay houses first then apartments below – 1998 to December 1 2016.
<a href="/images/2016/12/09/RWM-Research-Neutral-Bay-Houses-Apartments.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/12/09/RWM-Research-Neutral-Bay-Houses-Apartments.png" alt="">
Source: RWM Research and pricefinder
Now if you take a moment these same results would be mirrored across other Sydney suburbs so it should be clear by now the Sydney real estate market no longer requires your government’s stimulation. Who knows that by taking immediate action your embarrassing polling might even bounce? What the Sydney property markets actually need now is organic growth not artificial.
Whilst you are on the job please call your mate Mike Baird and tell him to take an axe to his insidiously high stamp duty which is why we have record low stock levels. You might even like to explain to him that from an economic stand – point less can mean more.
We will be back in 2017 where we will take – up where we left off and no, Australia will not be in recession when we return.
Have a Merry Christmas, a safe and wonderful New Year.
ROBERT SIMEON is a director of <a href="https://www.rwm.com.au/" target="_blank" title="RWM" rel="nofollow">Richardson Wrench Mosman and Neutral Bay</a> and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog <a href="https://www.rwm.com.au/news/" target="_blank" title="Virtual Realty News" rel="nofollow">Virtual Realty News</a> since 2000.
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A climactic finish to 2016: Robert Simeon

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GUEST OBSERVER
The economy contracted by 0.5 percent in the September quarter after an upwardly-revised 0.6 percent increase in the June quarter (previously up 0.5 percent).
The Aussie dollar fell half a cent in response. It was the first contraction in the economy for 5½ years.  
Annual economic growth slowed from 3.1 percent to 1.8 percent.
Contribution to growth: The biggest contribution to growth came from household investment (+0.3 percentage points) followed by inventories (+0.1pp). The biggest drag on growth was public investment (-0.5pp) followed by net exports (-0.2pp) and dwelling investment, ownership transfer costs and commercial construction (all -0.1pp)
Income: Real gross national income rose by 0.9 percent in the September quarter to be up 3.2 percent on the year. In nominal terms GDP lifted 0.5 percent in the quarter and rose by 3.0 percent over the year.
Productivity: Gross value added per hours worked in the market sector fell by 0.8 percent in the September quarter after rising by 1.7 percent in the June quarter. Annual growth was 0.7 percent.
Industry sectors: Eleven of the 19 industry sectors expanded in the September quarter. The strongest sector was Agriculture, forestry and fishing, up 7.5 percent and adding 0.2 percentage points (pp) to growth. Finance and insurance services added 0.1pp. The Construction sector fell by 3.6 percent in the quarter (-0.3pp). Mining, “Other services” and Rental, hiring and real estate services all took 0.1pp off growth.
What does it all mean?
This will turn out to be just a blip on the radar screen, but a very important blip. Many Australians have become complacent. And that includes businesses and politicians. The only way the economy can grow is by Australians spending, investing and employing. Australians didn’t do this in the September quarter. The Reserve Bank has been intimating for some time, monetary policy is reaching its limits. Infrastructure spending may prove useful in coming quarters in providing fresh momentum to the economy.
In the September quarter the economy was hit by a perfect storm. Not only was there the reaction to the UK ‘Brexit’ vote, there was also the Federal election and then there was the uncertainty about the US elections. And clearly, when there is a lot of uncertainty around, consumers and businesses tend to delay decisions to spend, invest and employ. A big fall in public investment also accounted for the bulk of the contraction of activity in the quarter.
While spending measures of the economy were weak in the September quarter, income measures were actually quite strong. And the farm sector was also strong in the quarter and should also be a key contributor to growth in coming quarters. For those who may have forgotten after 25 years of consistent economic growth, a ‘technical recession’ involves two consecutive quarters of contraction in the economy. We don’t believe there are grounds for another quarter of contraction. And indeed it would be amazing if there was some variant of ‘recession’ with a jobless rate of 5.6 per cent.
The Reserve Bank is always looking ahead and so must we. The outlook for the economy remains bright with record home building, a record winter crop, unemployment at 3½-year lows and super-low interest rates. Already the data for the December quarter has been more upbeat including retail spending and job ads.
The Reserve Bank warned yesterday that annual economic growth would slow before it picked up in 2017. That is our expectation also. The economy should grow near its ‘potential’ rate of 3 per cent in 2017. We continue to believe that interest rates will remain on hold in coming months. But no one will be thinking of rate hikes any time soon.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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Economy shrinks, wake-up call for Australia: CommSec's Craig James

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GUEST OBSERVER
The RBA kept its cash rate steady at 1.50 percent, as widely expected. 
The post- meeting statement also very clearly retained the RBA’s neutral policy stance. At this stage, the RBA clearly has close to no appetite to consider that it should cut rates further. 
This is despite the RBA’s own expectation that tomorrow’s Q3 GDP print will be weak, with the statement noting ‘some slowing in the year-ended growth rate is likely, before it picks up again’ (Bloomberg shows the current market consensus is for a -0.1 percent q-o-q fall in Q3 GDP). Of course, in many ways, the Q3 numbers will be old news, given that they largely pre-date the sharp jump in export prices and the election of Donald Trump. 
The RBA noted, in particular, that higher commodity prices are boosting national income. We expect the RBA to keep its cash rate on hold through 2017. 
Facts 
The RBA kept its cash rate steady today at 1.50 percent, as expected by all 27 economists in the Bloomberg survey. Just prior to the decision the market was pricing no chance of a cut. 
Implications 
Today’s RBA announcement delivered few surprises. The central bank kept its cash rate on hold at 1.50 percent, as expected, and the post-meeting statement maintained the RBA's neutral policy stance, again, as expected. The post-meeting statement repeated that leaving rates on hold would be ‘consistent with sustainable growth in the economy and achieving the inflation target over time’. 
The market focus now shifts to the Q3 GDP print for Australia. 
A weak q-o-q print is forecast (Bloomberg’s latest survey has a consensus of -0.1 percent q-o- q and 2.2 percent y-o-y), reflecting a weak run of partial indicators on the expenditure side of the accounts in recent days. The RBA only stated that ‘the annual rate of growth is likely to slow’, suggesting that they may still be expecting a positive q-o-q print. More importantly, they stated that they expect it to pick-up again soon. 
In many ways the Q3 GDP print is likely to be old news. Firstly, most of the partial indicators, including business surveys and retail sales suggest growth will bounce back in Q4. Secondly, the bulk of the ramp up in hard commodity prices is set to flow through in Q4, further boosting income growth in the quarter. Thirdly, the election of Donald Trump, rally in bond markets, ramp up in expectations of Fed hikes and strengthening in the USD (and conversely weaker AUD) have all arrived more recently. 
As a result of these more recent developments and the RBA’s continued neutral policy stance in today’s statement, the current market pricing suggests only a 20 percent chance of a 25bp cut by mid-2017 before a 20% chance of hike by end-2017. We expect the RBA to keep its cash rate on hold through 2017 and have hikes pencilled in for 2018. 
<a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. 
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2017 on hold, but pencil in RBA rate hikes for 2018: HSBC's Paul Bloxham

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GUEST OBSERVER
No surprises from the RBA which left the official cash rate on hold yet again at 1.5 percent at its December Board meeting. 
The RBA appears to be a bit more confident in its views regarding global growth and inflation, sees rising commodity prices as reflective of both stronger demand and supply cutbacks and sees them boosting national income and doesn’t seem too concerned about the rise in bond yields.
By contrast, its comments on Australia are a bit more mixed seeing growth slowing in the short term, the labour market as mixed and inflation remaining low before turning back up. In terms of the housing sector it now seems a bit more concerned acknowledging that conditions have strengthened overall. 
But while the RBA sees year ended growth slowing in the short term – which is presumably a reference to the high risk of a negative September quarter GDP outcome – it  doesn’t appear to be too concerned and is expecting growth to pick up again as resources projects complete. 
Following a surprisingly correlated run of weaker than expected September quarter data for real retail sales, housing construction, private and public investment and trade volumes there is now a very high risk that GDP contracted in the September quarter with the consensus of economists now expecting -0.1 percent quarter on quarter or +2.2 percent year on year.
This would only be the fourth quarter of GDP contraction since the last recession ended in 1991 – the last three being in the December quarter 2000 (after the introduction of the GST), December quarter 2008 (the GFC) and March quarter 2011 (mainly due to a hiccup in exports). While a contraction will no doubt invite talk of a recession (usually defined as two consecutive quarters of falling GDP) we, like the RBA, see growth bouncing back again.
Weak September quarter GDP looks like payback for stronger than expected GDP growth over the year to the June quarter of 3.3 percent. And looking forward the ramp up in resource export volumes has further to go, there is still a huge pipeline of housing activity yet to be completed, strengthening approvals for non-dwelling construction are a positive sign, the drag from mining investment is fading as it reduces as a share of GDP and its likely to be close to a bottom in the next 12-18 months, recent retail sales data have improved suggesting a consumer bounce back in the December quarter and the rebound in commodity prices tells us that the income recession in Australia is over.
But despite this and although the tone of the RBA’s Statement remained basically neutral, absent a surprise bout of fiscal stimulus in Australia we remain of the view that its way too early to rule out further rate cuts next year.
The risks to growth are on the downside, inflation is likely to remain below target for longer than the RBA is forecasting as wages growth remains weak, the RBA may also need to offset increases in bank mortgage rates that are being driven by the rise in global bond yields and the $A remains too high. So we are allowing for one rate cut in the first half of next year. Regardless of whether there will be further cuts or not, a rate hike remains a 2018 story at the earliest.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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mick.cee-iDmgDDAmu8

Still see another rate cut next year: AMP's Shane Oliver

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The RBA cash rate decision came out at 2.30 today with the decision to hold rates at 1.5 percent.
The RBA noted conditions in the housing market have strengthened overall, although they vary considerably around the country. 
"In some markets, prices are rising briskly, while in others they are declining.
It noted housing credit has picked up a little, although turnover of established dwellings is lower than it was a year ago. 
"Supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. 
"Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. 
"Growth in rents is the slowest for some decades."
Tim Lawless, CoreLogic head of research said despite inflation tracking well below the target range of 2-3 percent, the RBA decided to keep the cash rate on hold at 1.5 percent.  
"On one hand the RBA was likely considering the sluggish inflation numbers, the likelihood of a low or even negative economic growth reading when GDP data is released tomorrow, record low wage growth of 1.9 percent in the year to September and the loss of approximately 50,000 full time jobs in the year to October," he said.
"In balance, there are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates.  
"The reacceleration in housing values in some cities was likely a topic of discussion at the RBA, particularly considering the rebound in dwelling values that has been evident across some cities coincided with the two rate cuts earlier this year. 
"The May and August rate cuts were also accompanied by an aggressive rise in investment activity.
"A decision to cut the cash rate to new record lows could add further incentive to investors and owner occupiers which could push housing values even higher. The next RBA meeting isn’t until February 7th. 
"By this time the RBA will have had time to consider the performance of the housing market over the final quarter of 2016, as well as GDP figures for September and inflation numbers for the  December quarter.  Additionally there will be further clarity on the US economy where unemployment has reached a nine year low and interest rates are about to start ratcheting higher. 
"At 1.5 percent, the cash rate is still highly expansionary and, together with other factors, is likely to keep housing demand strong."
 
 
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jonathanchancellor-7SQnKwU6yx

RBA holds cash rate at December board meeting of 2016

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Reserve Bank Governor Philip Lowe December 2016 RBA statement.
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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past year. Economic conditions in China have steadied, supported by growth in infrastructure and property construction, although medium-term risks to growth remain. Inflation remains below most central banks’ targets, although headline inflation rates have increased recently. Globally, the outlook for inflation is more balanced than it has been for some time.
Commodity prices have risen over the course of this year, reflecting both stronger demand and cut-backs in supply in some countries. The higher commodity prices have supported a rise in Australia’s terms of trade, although they remain much lower than they have been in recent years. The higher prices are providing a boost to national income.
Financial markets are functioning effectively. Government bond yields have risen further with the adjustment having been orderly. Funding costs for some borrowers have also risen, but remain low. Globally, monetary policy remains remarkably accommodative.
In Australia, the economy is continuing its transition following the mining investment boom. Some slowing in the year-ended growth rate is likely, before it picks up again. Further increases in exports of resources are expected as completed projects come on line. The outlook for business investment remains subdued, although measures of business sentiment remain above average.
Labour market indicators continue to be somewhat mixed. The unemployment rate has declined this year, although some measures of labour underutilisation are little changed. There continues to be considerable variation in employment outcomes across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term.
Inflation remains quite low. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time, before returning to more normal levels.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.
Conditions in the housing market have strengthened overall, although they vary considerably around the country. In some markets, prices are rising briskly, while in others they are declining. Housing credit has picked up a little, although turnover of established dwellings is lower than it was a year ago. Supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.
Taking account of the available information, and having eased monetary policy earlier in the year, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
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Cautious approach by lenders noted by Governor Philip Lowe December 2016 RBA statement

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CAMA RBA SHADOW BOARD
<h2> </h2>
The course of the world’s largest economy has become less certain with Donald Trump unexpectedly triumphing in the US Presidential election.
<h2> </h2>
On the other side of the Atlantic, Europe is bracing itself for more trouble as it stands by watching Italy hold a referendum on a change to its constitution. Domestically, unemployment is flat, while consumer price inflation, at 1.0 percent year-on-year, remains well below the RBA’s 2-3 percent target band.
<h2> </h2>
The CAMA RBA Shadow Board continues to believe that the cash rate should remain at its current level but the probabilities for a required interest rate increase have strengthened on all horizons. The Shadow Board attaches a 56% probability to a rate hold being the appropriate policy setting. The confidence attached to a required rate cut equals 2 percent, while the confidence in a required rate hike equals 43 percent.
<h2> </h2>
There is little inflationary pressure emanating from the Australian labour market, with Australia’s unemployment rate still estimated to be 5.6 percent, according to the Australian Bureau of Statistics. Part-time and full-time employment figures continue to yoyo around on a monthly basis, making these numbers difficult to interpret. New data indicates that nominal wages grew a modest 1.9 percent, year-on-year.
<h2> </h2>
The Aussie dollar, relative to the US dollar, has depreciated since last month, temporarily trading as low as 73.1 US¢ on 21 November. Since then the dollar has rebounded and is now hovering around 74.5 US¢. Yields on Australian 10-year government bonds have continued their bounce from recent historical lows. They now equal 2.88%. Domestic share prices joined the global rally but are now consolidating, with the S&amp;P/ASX 200 stock market index trading near 5,500.
<h2> </h2>
Worldwide, more uncertainty enthrals financial markets and policy makers. After Donald Trump’s surprise win of the US Presidential election, financial markets rallied but this may be short-lived. Across the globe, people are trying to predict what a Trump Presidency will look like, whether Trump’s policies will match his campaign rhetoric and the the implications of his policies, many of which do not neatly fit into the traditional left-right spectrum.
<h2> </h2>
Europe is on edge about this Sunday’s Italian referendum to change the Italian constitution, with a banking crisis and further political turmoil looming on the horizon.
<h2> </h2>
With the US Presidential election out of the way and the US economy holding up for the time, the Federal Reserve Bank in the US may start in earnest to lift the federal funds rate. The Organization of the Petroleum Exporting Countries (OPEC) met again in Vienna to agree on production cuts, with pundits estimating that the world price for crude oil could settle around US$ 60 a barrel.
<h2> </h2>
These developments, along with recent data pointing to an uptick in global inflation, suggest slight upward pressure for global prices. Eventually, this pressure is likely to spill into the domestic economy; hence the Shadow Board’s slight revision of preferred interest rates to the upside.
<h2> </h2>
Consumer confidence, as measured by the Westpac-Melbourne Institute Consumer Sentiment Index, is virtually unchanged from the previous month. The manufacturing and services PMI, which measure the performances of the manufacturing and services sectors, have strengthened again, from 50.9 to 54.2 and from 48.9 to 50.5, respectively.
<h2> </h2>
The AIG Performance of Construction Index (PCI), after its recent blip up, fell again, from 51.4 in September to 45.9 in October. Building permits declined for the third month in a row, this time by 12.6 percent, which points to an overall weakening of the housing market.
<h2> </h2>
The Shadow Board’s preference for the optimal interest rate has shifted a little. It now attaches a 56 percent probability (64 percent last month) that “no change” is the appropriate policy, a 2 percent probability (4 percent last month) that a rate cut is appropriate and a 43 percent probability (32 percent in the previous month) that a rate rise, to 1.75 percent or higher, is appropriate.
<h2> </h2>
The probabilities at longer horizons are as follows: 6 months out, the estimated probability that the cash rate should remain at 1.50 percent equals 21 percent, three percentage points down from the previous month.
<h2> </h2>
The estimated need for an interest rate decrease has fallen to 9 percent (down from 13 percent in November), while the need for a rate increase equals 71 percent (63 percent in November).
<h2>A year out, the Shadow Board members’ confidence that the cash rate should be held steady equals 17 percent (18 percent in November), while the confidence in a required cash rate decrease fell four percentage points to 6% and the confidence in a required cash rate increase equals 77 percent (72 percent in November). </h2>
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Cash rate should hold pre-Christmas: Shadow RBA Board

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GUEST OBSERVER
The past week saw Japanese and Chinese shares both gain another 0.2 percent, but US and European shares fall 1 percent and Australian shares fall 1.2 percent as they had a bit of a consolidation along with the $US (which fell 0.8 percent), after the post US election rally led to overbought positions. 
However, energy shares and the oil price (up 12 percent) got a huge boost after OPEC agreed on a production cut. Metal prices and the iron ore price slipped a bit but the $A still rose slightly as the $US fell. Bond yields were mixed – up in the US and Australia but down in Europe. 
After a “yes they will, no they won't” soap opera, OPEC agreed on an oil production cut of 1.2 million barrels a day. While stronger than talked about in September this was made necessary by a ramp up in production since then. 
The cut adds to confidence that we have seen the low in oil prices and that deflationary forces are in retreat. So good news for energy producers and central banks. But there is a danger in getting too excited. 
Around $50/barrel is where the median shale oil producer is economic and so shale production will start to ramp up again (the US rig count is already well up from its lows) and it’s questionable whether OPEC discipline will really hold...so I am sceptical that the oil price will go too high. Maybe $55 or $60 tops. Inflation is already picking up as the 2014 to early 2016 oil price plunge drops out, but so far the flow on to core inflation has proven to be muted. Don’t forget that the oil price is still less than half 2013-14 levels. 
For Australian petrol prices the OPEC cut might add 5 cents a litre at the bowser but that will be lost in normal day to day price volatility.
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China appears to be seeing another one of its periodic policy tightening phases with increasing measures to cool the hot property market, a crackdown on capital outflows to ease downwards pressure on the Renminbi, tighter monetary conditions and measures around shadow banking and commodity markets. The Chinese share market may be a beneficiary though to the extent capital outflows are limited and need to find a home domestically and it’s not seen as too hot. 
Major global economic events and implication 
US data remained strong with September quarter GDP growth revised up to 3.2 percent, consumer confidence rising sharply in November, the ISM manufacturing conditions index rising further in November, home prices continuing to rise, construction spending up and employment up solidly in November and unemployment down to 4.6 percent.
The Fed remains on track for a December rate hike, particularly with the fall in unemployment indicating less slack in the economy. However, a fall back in wages growth in November to 2.5 percent year on year will likely keep rate hikes on a gradual path for now until the Fed gets more clarity around Donald Trump’s stimulus plans.
Meanwhile, Trump’s picks for various cabinet positions including Treasury secretary are adding a bit to confidence in his administration such that the dial is still pointing to Trump the pragmatist as opposed to Trump the populist.
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In the Eurozone economic sentiment moved higher in November and bank lending accelerated a touch pointing to slightly stronger economic growth. Unemployment even fell to its lowest since 2009. Meanwhile CPI inflation rose as the impact of the plunge in oil prices continues to fall out but core inflation remains stuck at a low 0.8% year on year. 
Japanese data was better than expected with continuing jobs market strength, stronger than expected household spending, a continuing upswing in industrial production and gains in housing starts and construction orders. 
Chinese business conditions PMIs were better than expected and remain consistent with good growth. 
Indian September quarter GDP growth accelerated to 7.3 percent yoy from 7.1 percent. Growth may slow in the current quarter because of “demonetization”, but the November manufacturing conditions PMI suggests only a moderate impact. 
Australian economic events and implications 
Weak business investment data both for the September quarter and intentions for the current financial year along with another sharp fall in building approvals added to a sense of near term economic gloom regarding Australian economic growth. As we noted a week ago, there is a significant risk that September quarter GDP growth will be negative – thanks to weak retail sales volumes, a fall in dwelling investment, a continuing fall in business investment and weak net exports. 
While a continuing decline in mining investment is no surprise the failure to see stronger non-mining investment is disappointing. However, there is no reason to get too gloomy. Weak and possibly negative September quarter GDP growth looks like payback for stronger than expected GDP growth over the year to the June quarter of 3.3 percent. 
And looking forward the ramp up in resource export volumes has further to go, there is still a huge pipeline of housing activity yet to be completed so home building is likely to rebound in the short term, strengthening approvals for non-dwelling construction are a positive sign, the drag from mining investment is fading as it reduces in importance and its likely to be close to a bottom in the next 12-18 months (see chart), recent retail sales data have improved with three months in a row of solid growth up to October suggesting a consumer bounce back in the December quarter, another rebound in the manufacturing conditions PMI for November suggests that the September quarter growth soft patch may be over and the rebound in commodity prices tells us that the income recession in Australia is over. 
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However, recent soft data highlights that its way too early to be talking about a 2017 RBA rate hike. In fact given the downside risks to near term growth and inflation along with the $A remaining too high we remain of the view that the RBA will cut the cash rate again during the first half of 2017. 
Just finally, home price momentum remained solid in November according to CoreLogic – except in Melbourne where unit prices lost 3.2%. The apartment supply surge is starting to impact in that city and it will likely spread to others next year. 
What to watch over the next week? 
Reaction to the Italian Senate referendum on December 4 will no doubt impact investment markets early in the week ahead. While confirmation of a “No” vote (as the polls are suggesting) will add to uncertainty about the Italian government and its banks and maybe further fuel fears about a “break-up” of the Eurozone, a lot will have to occur before Italy leaves the Eurozone if at all.
 An early Italian election is unlikely to occur and even if there is the populist Five Star Movement (5SM) is unlikely to win unless it softens its anti-Euro stance. Meanwhile, if the “Yes” vote wins Italy’s economic woes will remain (and ironically it would increase the risk that 5SM could form government at some point). So the referendum is unlikely to settle anything either way. More broadly, the Eurozone is likely to continue to hang together and bouts of market turmoil driven by break-up fears should be seen as buying opportunities. 
After the Italian vote, all eyes in Europe will shift to the ECB meeting on Thursday which is expected to announce a six month extension of its quantitative easing program beyond its current expiry of March 2017 and some changes to enable it to buy a wider universe of bonds. Continuing moderate growth and sub-par inflation along with issues around Italy and Italian banks are likely to be the main drivers with the back-up in bond yields giving the ECB a bit of leeway. It may also try and inject a bit of flexibility into its QE program to allow it to speed up and slow individual country bond buying as justified. 
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In the US, expect the non-manufacturing conditions ISM index (Monday) to remain strong, the trade balance (Tuesday) to deteriorate and labour market indicators for hiring and vacancies (Wednesday) to remain solid. 
Chinese October trade data (Thursday) is expected to show continued softness in exports and imports and a further rise in both consumer and producer price inflation (Friday). 
In Australia, the RBA is expected to leave rates on hold on Tuesday. While recent data points to soft September quarter GDP growth to be released on Wednesday this is unlikely to be enough to move the RBA to cut rates given recent upbeat commentary on the economy from both Governor Lowe and Assistant Governor Kent. However, as noted above we remain of the view that the RBA will cut rates again in the first half of next year reflecting downside risk to both growth and inflation. 
On the data front in Australia, expect September quarter GDP growth (Wednesday) of just 0.2 percent qoq or 2.5 percent yoy driven by weak business investment, retail sales, housing investment and trade with a high risk of a fall in GDP. September quarter data for production, profits and inventories (Monday) and net exports and public demand (Tuesday) will help fine tune September quarter GDP forecasts. Expect the surge in coal prices to have led to a further collapse in the trade deficit (Thursday) and housing finance (Friday) to fall. 
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Outlook for markets
Sovereign bonds are now very oversold and due for a short term pullback in yield. But still low bond yields point to a poor medium term return potential from them. The abatement of deflationary pressures as commodity prices head up, the gradual using up of spare capacity and a shift in policy focus from monetary to fiscal stimulus indicates that the long term decline in yields since the early 1980s is probably over. Expect the trend in bond yields to be up.
Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yieldby investors though as these two asset classes never fully adjusted to the full decline in bond yields.
Dwelling price gains are expected to slow, as the heat comes out of Sydney and Melbourne thanks to poor affordability, tougher lending standards and as apartment supply ramps up which is expected to drive 15-20 percent price falls for units in oversupplied areas into 2018.
Cash and bank deposits offer poor returns. 
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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