Good morning,

Harvey Norman says retail sales growth has halved, from 16.5% to 8.7% and Starbucks are closing more than half their Australian stores. 2nd quarter GDP estimates are being revised downwards, with the year on year rate now likely to fall from Q1 level of 3.6% to around 3%.

With the Trading bank writedowns, an RBA easing can now be brought forward, in a pre-emptive move to help stalling growth.

Although currently an outside chance, the RBA could consider cutting the cash target rate by as early as September. After the RBA leaves cash on hold in August, (and therefore officially ignoring the 2Q CPI), expect a more dovish tone in the accompanying August statement and minutes. This will pave the way for an early rate cut, which by then could be 'fully priced' into futures pricing.

September comes into focus as Glenn Stevens will face the Semi Annual House of Reps Committee hearing on Sep 8. It would be much easier to explain why rates have been reduced, rather than why they haven't.

A rate cut in September is only a chance at this point, however given the positive tone to debt futures, a cut could become fully priced very quickly. And the RBA always prefers to state that their move 'was fully anticipated'.

November is the 2nd favourite for an RBA rate cut, with some slim prospect that it will be the second cut for 2008.

No sense in beating around the bush

http://www.bloomberg.com/apps/news?pid=20601081&sid=aqfhjDsGSajw&refer=australia

John Craig
Phone: (612) 8243 3526
Fax: (612) 9255 7492
Mobile:(61) (0) 416 96 7777
jcraig@bellcommodities.com.au
http://www.bellcommodities.com.au/reports/JohnCraig.asp