ASIA MORNING: RBA Lowe Delivers Cryptic Message

While many might have been expecting RBA Governor Lowe to all but confirm an October rate cut citing sluggish job numbers, there was little indication from last night's speech that the RBA completely agreed with that prognosis. Instead, if the speech is anything to go by, Lowe's overall tone and language was well-balanced - less dovish than expected - potentially leaving the door open for a surprise hold in October. AUDUSD went on to climb +0.3% to test 0.68 handle as markets lowered the probability of an October 25bps rate cut, now at 70% from 79% previously. 

In his speech, Lowe mentions the usual culprits of geopolitical uncertainty - US-China trade wars, the Middle East, Brexit, Hong Kong - that weigh on global economic activity. However, also highlights that "global growth has been reasonable and stable" and "unemployment in advanced economies are the lowest they have been in decades". Lowe fans optimism by suggesting that should "some of these uncertainties be resolved" - "the global economy could grow quite strongly". I'd say this was more positive relative to the RBA's September statement on international conditions. 
 

On the domestic front, Lowe champions the strong fundamentals of the Australian economy eschewing any mention of the sluggish job numbers that recently saw market expectations for a rate cut aggressively brought forward. He highlights that "there are some signs that, after a soft patch, the economy has reached a gentle turning point" and is "expecting a modest pick-up in the quarters ahead", citing tax cuts, a weak AUD, a rosier housing market, infra spending and the resource sector as sources for a better outlook. The challenge, Lowe poses, is whether Australia can capitalise on these strong fundamentals and grow the confidence of the business sector to innovate and invest. 
 

Overall, Lowe still sees that "an extended period of low interest rates will be required in Australia...to achieve the inflation target over time", but neither makes clear nor confirms whether that means a rate cut comes in October or November. Given Lowe highlights the lack of household spending as the main source of uncertainty to the RBA's outlook, markets to continue pivoting strongly going forward on wage growth and inflation soundbites should be expected. Interestingly, Lowe mentions that we live in an interconnected world hinting that the RBA won't ignore the "long-lasting shifts in global interest rates". 
 

December ASX 200 Futures tumbled -1.1% overnight with most of the move attributed to the slide in Brent Crude Futures -3.7%. Major moves in the index were either side of Lowe's speech, and so, any impact from it can be largely disregarded. With oil down, expect a negative open from ASX 200 cash and oil sensitive stocks - Oilsearch (OSH.AX), Woodside Petroleum (WPL.AX) and Santos (STO.AX). Interestingly, ASX futures have retraced back into 61.8% at 6,678.