Important new market indicator launched – says rate cut is go and “Little Lady” in the 5th is a sure thing.
So things are certainly shaping up for a rate cut later today.
After you’ve been in the game for a while, you get to recognise how it works.
You see, the RBA doesn’t want to freak any body out. They don’t want to drop any bombshells on the market. They want their decisions to go down as smoothly as possible, to avoid any collateral damage.
So they work hard to manage expectations.
That process typically involves letting a couple of their key guys in the major papers in on the deal.
The markets know these guys have extra access, so when they come out the week before a decision with a very reasonable argument as to why the bank should cut rates, then there’s a very reasonable chance the bank is actually going to cut.
The markets adjust themselves accordingly, without being able to take big bets on it because you just don’t know for sure. Not totally. But by the time the decision actually rolls around, it’s no big deal.
Everyone just rolls with it. All very reasonable.
The RBA never officially endorses their mouth pieces of course, but it’s taken as a bit of an open secret.
Seems though it’s not such a secret anymore.
Because when their men cam out this week with some very reasonable arguments as to why a rate cut was done deal, I thought, there’s an opportunity here.
So I headed on over to Sportsbet.com to see what odds they were offering.
The whole online betting things a bit of unknown to me. The odds are calibrated to even out the wins and losses in the betting pool, less a margin for the service.
So it’s the collective mood of the betting pool that determines the odds.
But who is this betting pool?
And while I’m guessing that pool is collectively across all the details of Race 5 at Randwick, what’s their collective wisdom going to say about interest rates?
There could be some knowledge gaps worth exploiting here. If I imagine my local TAB, I’m seeing a lot of form guides and not a lot of financial newspapers.
And I’ve just come out of a very enjoyable experience with a knowledge gap – Donald Trump.
A lot of people would say that Donald Trump is a knowledge gap himself, but early on in the run for the primary, I saw what he was brining to the fight, and knew that the others didn’t have a chance.
And Sportsbet were offering fantastic odds – 7:1.
Know you might say I had unique insight and an affinity with Trumps game so that’s how I got the inside running. But remember, this is at a time when Trump was leading every opinion poll!
The data were saying he was hugely popular, but the bookies were running him as an outside chance.
It was just such a curious knowledge gap. I had to take a punt on it just for curiosity’s sake.
Anyway, Trump sealed the nomination and I took my payout last week. Very sweet.
And so on the back of that high, I’m thinking, maybe I could have a little flutter on interest rates. Maybe the punting pool doesn’t know about this inside man caper.
It was a little disappointing. Sportsbet are leaning very heavily to a rate cut today. They’re offering just 1.67 for a 25bps cut, while no move is paying 2.1.
Maybe 1.67 a little generous. That implies something like a 60% probability of a cut. I think it’s quite a bit stronger than that, but not a huge amount. And it doesn’t make all that much difference to the payouts.
So it doesn’t look like there’s anything to exploit here. Turns out the punting pool at Sportsbet is quite well informed.
It makes me wonder how they set their odds. The bookies probably got research teams on it and plays in secondary markets. I guess the interest rate isn’t too whacky a thing to be betting on.
They are offering 4:1 on the chance of two more rate cuts this year. That’s one tomorrow and one some place else. Would you give that a 25% probability?
I wouldn’t think so. I think we’ll see a rate cut today and at least one more this year. I guess the question for me is one or two.
Because the Aussie dollar keeps edging upwards and risks getting away from its handlers. Domestic conditions are stable but there’s some pretty serious headwinds looming – as the mining transition completes and the apartment building boom comes off the boil.
Rate cuts will juice the property market even more, but what are you going to do? You can’t sacrifice the whole economy just to keep a lid on house prices.
And everyone else is doing it mum. Japan’s threatening to go helicopter money, the UK and euro are getting loose and limber, and the US, after promising a return to normal levels, has delivered just one little rate hike since the end of last year. Disappointing GDP numbers last week are actually making it harder and harder to make the case that rates should rise.
In a world we’re pretty much everyone is cutting (oh, did I mention China), you have to follow suit. If not, your assets look to attractive, and foreign capital bids up the Aussie dollar.
It’s already higher than the RBA is comfortable with. If it goes even higher then the local economy will have a tough run ahead of it.
That’s life as a small open economy. You don’t really get to set your own interest rates. You’ve just got to roll with it.
So any argument that says that interest rates here hold or even go up is assuming that the rest of the world will be feeling comfortable enough with things that they think that can start normalising rates.
I just don’t see that happening. Not in the next 6 months.
So, 4 to 1. I make take that bet…
Where do you see rates going? Any plays with online bookies you can see?