Rates jump again and Albo tames wild energy prices: What we learned this week

Australian GDP missed expectations

The Australian economy grew 0.6% over the September quarter, missing economists’ expectations by 0.1%. The annual figure also came in below consensus with the economy growing only 5.9% year on year compared to the expectation of 6.2%. Compared to the June quarter, growth in the Australian economy had slowed by 0.3%. The Bank forecasts that GDP growth will slow in early 2023 as household spending normalises in the face of higher interest rates and inflation.

The data release also detailed that the level of household savings is returning towards pre-pandemic levels. Over the September quarter, the household savings ratio declined from 8.3% to 6.9%. Following the GDP announcement, the ASX 200 fell 0.6% during trading on Wednesday.

UK backs coal

British levelling up Secretary Michael Gove approved the UK first coalmine in 30 years on Wednesday. The project at Whitehaven in Cumbria brings an estimated investment of AUD$298 million, approximately 500 new jobs and expected production of around 2.8 million tonnes of coking coal annually.

The greenhouse gas emissions produced by the new mine is estimated to be at around 4000,000 tonnes per year, doing the same level of damage as an additional 200,000 cars.

The British government claims that despite the additional emissions, the mine adheres to the UK climate governing legislation dictating the country reach net zero by 2050 as the mine will only operate up until 2049.

Do you have an extra $1000?

The RBA raised rates on Wednesday with Governor Phillip Lowe sating that further increases are expected next year. The 25-basis point hike means the cash rate now stands at 3.1% after eight consecutive rate hikes beginning in May.

Lowe once again acknowledge that monetary policy operates with a lag and that the full effects of the increase in interest rates are yet to be felt. Borrowers, however, are beginning to feel the heat.

Morningstar’s director or equity research, Johannes Faul, says variable rate borrowers are already starting to pay.

“Fixed mortgages need some time to roll off, and that’s probably longer than 12 months, but a large portion of variable, its almost instantly,” he says.

According to CBA it takes approximately 3 months for variable rate mortgage holders to pay a higher minimum monthly repayment following a rate hike.

Individuals who had taken out a million-dollar loan in April this year has witnessed their monthly repayments increase by $1,681 over the year.

China waves goodbye to the ‘zero covid’ policy...kind of

The Chinese government decided that it will be dumping the strictest measures of its controversial zero covid policy on Thursday. The new approach means individuals who have the virus can isolate at home as opposed to state facilities if they have mild or no symptoms. It also allows individuals to travel freely within the country without having to show negative test results.

The change in approach comes as the public took to the streets to protest the strict policy that choked the country’s economic growth and limited individuals late last month. Following the protests, Chinese authorities began to lift lockdown restrictions in some cities.

Easing of the three yearlong policy has caused concerns with a prediction of an overwhelmed medical system given the low vaccination rates amongst the elderly.

National cabinet ties down energy prices

The national cabinet met on Friday to discuss ways the Australian government can tackle soaring energy prices and provide household budgets with some relief. The meeting resulted in ministers agreeing on four components that will be used to ensure energy affordability.

1. LNG price cap

The rumoured natural gas (LNG) price caps discussed earlier this week were clarified during the meeting today. The government has decided to enforce a temporary price cap on LNG of $12 per gigajoule for the next 12 months.

2. Coal price cap

The government has also decided to implement a price cap on coal, restricting the price to $125 per tonne.

3. Price relief for Australians

The government will provide up to $1.5 billion to provide support for households and small businesses.

4. Capacity investment scheme

Prime Minister Anthony Albanese also mentioned securing Australian energy in the future. He referred to capacity investment scheme announced on Thursday, a $10 billion investment used to stabilise the energy grid with new wind and solar farms as we transition away from coal.

The federal parliament will meet next week to legislate the approach.

What we’re watching:

• Monday: Westpac consumer confidence index December
• Tuesday: NAB consumer confidence November, US inflation rate, RBA Governor Lowe speech
• Wednesday: Great Britain inflation rate, US Federal Open Market Committee economic projections
• Thursday: Australian unemployment rate, Bank of England interest rate decision, US retail sales data

One good read:

China’s covid pivot sounds like the real thing, bumps and all