Overnight note from MS on the Reserve Bank of Australia minutes (released yesterday)
(bolding mine, although this is more MS reminding us of risk than new news)
The canary's warning...
- In the RBA minutes of its June 4 meeting, members agreed that it was "more likely than not that a further easing in monetary policy would be appropriate in the period ahead".
- Today's deficits and debt levels define tomorrow's growth potential and, implicitly, the real return expectations of the economy.
- Over the past two decades, Australia has built up private sector debt. Here, household debt is most problematic as it often financed low-yielding assets like real estate. Australia's 1Q house price index fell by 7.4%Y and declined by 3% compared to 4Q. With actual and anticipated real estate return falling rapidly, Australia is facing increasing deleveraging risks, undermining its economy
I'd add that household debt is also financed by wage and job expectations. wage growth is slow, but job market growth has held up. If job markets growth slows, or decline this will be a problem for leveraged households. The RBA keeps telling us its watching labour market developments. Not surprisingly.
