Weekly Market & Currency Developments – From Our Bankers

Each week Freightplus updates our community on the latest market and currency developments. Here are the developments for the week of the 25th of August.

Positive consumer finances; Watchful RBA

Weekly consumer sentiment; Reserve Bank Board minutes

  • Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 112.8 points. Consumer sentiment is now below the average of 114.5 points held since 2014 and the longer term average of 113.1 points since 1990.
  • Reserve Bank: Minutes of the August 6 Reserve Bank Board meeting were released.

 

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The Reserve Bank Board minutes and speeches provide guidance on interest rate settings.

 

What does it all mean?

  • Consumer sentiment understandably fell in the past week in response to the volatility on global sharemarkets. But encouragingly, Aussie consumers were positive on their finances/household budgets – not just the current state of finances but also the outlook over the next year. With sharemarkets stabilising again, presumably consumer sentiment will rebound next week. The outlook for family finances is at three-month highs.
  • After cutting rates in June and July, Reserve Bank Board members thought it “appropriate” to assess the landscape before deciding the next move on rates. But the Board noted that a 25 basis point was fully factored in by financial markets for November and a similar reduction expected in 2020. So this is the interest rate road map that investors and analysts are working on.
  • The ‘special topic’ for Reserve Bank Board members at the August meeting was “unconventional monetary policy measures” used by advanced nations in the past decade. Board members noted that “a package of measures tended to be more effective”. So if the RBA found itself with a cash rate nearing zero, it would likely unveil a range of measures and “communicate clearly and consistently about these measures.”
  • The Reserve Bank Board minutes can’t be construed as either ‘dovish’ or ‘hawkish’. However the minutes make it clear – as Governor Lowe has already done – that interest rates will remain low for an extended period.

 

What do the figures show?

Consumer Sentiment

  • The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 112.8 points. Consumer sentiment is now below the average of 114.5 points held since 2014 and the longer term average of 113.1 points since 1990.
  • Three out of the five major components of the index fell last week:
    • The estimate of family finances compared with a year ago was up from +10.1 points to +10.3 points;
    • The estimate of family finances over the next year was up from +27.7 points to 28.5 points;
    • Economic conditions over the next 12 months was down from +0.6 points to -3.2 points;
    • Economic conditions over the next 5 years was down from +12.9 points to +4.0 points;
    • The measure of whether it was a good time to buy a major household item was down from +26.3 points to 24.5 points.
  • The measure of inflation expectations fell from 3.9 per cent to 3.8 per cent.

 

Reserve Bank August Board minutes

  • Last paragraph: “Based on the information available and the central scenario that was presented, members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment and achieve more assured progress towards the inflation target. Having eased monetary policy at the previous two meetings, the Board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy. Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
  • Risks: “Overall, the domestic risks to the forecast for output growth appeared to be tilted to the downside in the near term, but were more balanced later in the forecast period.”
  • Home construction: “Timely information from liaison contacts suggested that increased buyer interest had yet to translate into more housing sales. However, members noted that signs of a turnaround in housing markets suggested there were some upside risks to dwelling investment later in the forecast period, particularly given the expected strength in population growth.”
  • Global: “…members observed that the escalation of the trade and technology disputes had increased the downside risks to the global growth outlook, although the central forecast was still for reasonable growth.”
  • Global: “In the major advanced economies, risks to the outlook remained tilted to the downside, reflecting the trade disputes.”
  • Unconventional monetary policy: “Members reviewed the experience of other advanced economies with unconventional monetary policy measures over the preceding decade”…“Members noted that a package of measures tended to be more effective than measures implemented in isolation. Finally, it was important for the central bank to communicate clearly and consistently about these measures.”
  • Outlook: “The forecast for GDP growth over 2019 had been lowered to 21⁄2 per cent. Growth was expected to pick up to 23⁄4 per cent over 2020 and to around 3 per cent over 2021. This was supported by a range of factors, including lower interest rates, tax measures, signs of an earlier-than-expected stabilisation in some established housing markets, the lower exchange rate, the infrastructure pipeline and a pick-up in activity in the mining sector.”

 

What is the importance of the economic data?

  • The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
  • The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

 

What are the implications for interest rates and investors?

  • Firm job growth, positive views on family finances, tax cuts and the lift in the minimum wage all represent positive drivers for consumer-focused businesses. The main negatives are the lower Aussie dollar, relatively high petrol prices and global economic uncertainty.
  • Experts expect the Reserve Bank to cut rates again in November 2019 and February 2020.

 

Job market winners & losers:

Cairns, Bendigo & NSW Riverina lead the way

Detailed labour force

Regional unemployment: The regions with the highest unemployment rates are dominated by Queensland, South Australia and Western Australia. The regions with the lowest jobless rates can be predominately found in NSW, ACT and Victoria.

The detailed job data can influence interest rate policy and government spending decisions.

 

What does it all mean?

  • The Reserve Bank is targeting a national unemployment rate of 4.5 per cent. So how are we progressing?
  • Of Australia’s 87 SA4 regions, 30 of the regions have a jobless rate at or below 4.5 per cent (using rolling annual averages). At the other end of the scale, 23 regions have jobless rates of 6 per cent or above.
  • The average unemployment rate across all regions is 5.2 per cent. Progress is being made but a significant amount of spare capacity exists – albeit largely outside Sydney and Melbourne.

 

What do the figures show?

Regional unemployment

  • Unemployment rates were assessed across the 87 SA4 regions where data is available from the Australian Bureau of Statistics (ABS). Data is available up to July and rolling annual averages were used for assessment to adjust for seasonality.
  • In the year to July the highest unemployment rate could be found in the Queensland Outback (14.6 per cent), followed by Moreton Bay North (Qld 9.0 per cent) and Logan-Beaudesert (Qld 8.0 per cent).
  • Lowest unemployment rates can be found in Sydney: Sutherland (2.2 per cent); Inner West (2.4 per cent); and Northern Beaches (2.8 per cent)
  • If the latest unemployment rates are compared with ‘normal’ levels (decade averages), encouragingly 65 regions have jobless rates that are below ‘normal – or better than the ‘average’ experience. Again, NSW and Victorian regions dominate the list but the average jobless rate in Cairns for the year to July was 4.4 per cent – almost 42 per cent lower than the decade average of 7.5 per cent.
  • At the other end of the scale, the 5.4 per cent jobless rate in Darling Downs-Maranoa was almost 44 per cent above the decade average of 3.8 per cent.
  • Cairns, Bendigo and the NSW Riverina are areas showing what is possible with job creation.

 

What is the importance of the economic data?

  • The Australian Bureau of Statistics (ABS) provides detailed labour market figures one week after releasing ‘top level’ statistics of employment & unemployment levels across states and territories. The detailed data is useful in identifying broader underlying trends and instructive about the health of the economy.

 

What are the implications for interest rates and investors?

  • Experts expect another rate cut in November and is pencilling in a further reduction in February 2020.
  • But the Reserve Bank can only do so much. Federal and State governments need to look at initiatives to encourage employment creation including fast-tracking infrastructure projects. Companies across Australia report that projects are being rolled out too slowly. The Reserve Bank is constantly liaising with business – hopefully those insights – as well as those by business groups – are being shared with policymakers.

 

Investor Signposts: Week Beginning August 25 2019

Australia: Business investment and construction activity data in focus

  • The coming week features new data on business investment and speeches from the Reserve Bank Governor and Deputy Governor.
  • On Monday, investors will be able to respond to a speech by Reserve Governor Lowe (delivered Sunday 2.25am AEST).
  • On Tuesday the weekly series of consumer confidence will be released by Roy Morgan and ANZ. Tax refunds, low mortgage rates and a bottoming of the property market are supporting consumer sentiment.
  • Also on Tuesday, our July Household Spending Intentions gauge is released. June readings showed weakness persists in the retail and motor vehicle sectors. But other sectors appear to be bottoming out with home buying intentions improving.
  • Also on Tuesday, the Reserve Bank Deputy Governor Guy Debelle is scheduled to speak at the Economic Society of Australia (ACT) lunch in Canberra at 12pm AEST.
  • On Wednesday, the Australian Bureau of Statistics (ABS) provides an update on construction activity. In the year to March, construction work done was at record highs in New South Wales, South Australia and Tasmania. But economists forecast a decline of 1.0 per cent in construction activity in the June quarter.
  • On Thursday, the ABS issues the publication “Private New Capital Expenditure and Expected Expenditure” for the June quarter, including estimates of future investment. The second estimate of spending in 2019/20 was $99.1 billion, up 12.8 per cent on the second estimate for 2018/19 – the strongest increase in 7 years. Economists expect that new investment (spending on buildings and equipment) was flat in the June quarter.
  • On Friday, the ABS releases the July data on building approvals – the consents granted by local councils to build new houses and apartments. Home building is easing in most states and territories.
  • Also on Friday, the Reserve Bank releases the estimates of private sector credit (effectively, loans outstanding). Annual housing credit growth was at historical lows of 3.5 per cent in June.
  • Also on Friday, the Australian Prudential Regulation Authority (APRA) releases estimates on bank deposits, loans and credit card lending for July.

 

Overseas: US economic growth and Chinese manufacturing activity in focus

  • As the Northern Hemisphere summer draws to a close, US investors have plenty of data releases to digest, including the second estimate of June quarter economic (GDP) growth. Chinese industrial profits and the ‘official’ manufacturing and services gauges are also scheduled.
  • The week begins on Monday in the US with the release of durable goods orders and business surveys from the Chicago and Dallas Federal Reserve. The strong US dollar, weak demand for exports, slowing global growth, soft Boeing aircraft orders and trade policy uncertainty are all weighing in US business investment.
  • On Tuesday, the regular Redbook weekly reading on US chain store sales is released along with home prices, consumer confidence and manufacturing data from the influential Richmond Federal Reserve.
  • On Tuesday in China, industrial profits data is scheduled. Falling corporate profits constrain firm’s capacity to expand production, investment and hiring. Falling producer prices are a headwind to the Chinese economy.
  • On Wednesday, weekly mortgage applications figures from the US Mortgage Bankers Association are due.
  • On Thursday, the weekly figures on jobless claims are issued, along with US GDP growth, pending home sales, trade, wholesale inventories and corporate profits data. The second estimate of June quarter annualised GDP growth is forecast to be weaker at 1.9 per cent, down from 2.1 per cent. Consumer spending remains solid due to low unemployment and robust wages growth, but business investment contracted due to trade policy uncertainty.
  • On Friday, personal income and spending data is issued along with the Chicago purchasing managers index and final consumer confidence reading from the University of Michigan. The personal income data includes pivotal inflation data – the core personal consumption expenditure deflator – the measure tracked by the Federal Reserve. The core PCE deflator may have lifted 0.2 per cent in July to stay 1.6 per cent higher on the year.
  • On Saturday in China, the National Bureau of Statistics releases the manufacturing and services purchasing manager indexes for August. Factory activity has contracted for five out of seven months so far in 2019 as the trade war with the US bites. That said, the services sectors contribution to GDP growth is over 50 per cent, and non-manufacturing activity continues to expand, supported by tax cuts.

 

Financial markets

  • The Australian corporate reporting season – the time when listed companies report earnings results – enters its final week. While subject to change, major companies expected to report include:
    • On Monday: Fortescue Metals Group and Resolute Mining.
    • On Tuesday: Adairs, AUB Group; Caltex Australia; CleanTeQ; Fleetwood; G8 Education; Japara Healthcare; Paladin Energy; Spark Infrastructure; Wesfarmers; Yowie.
    • On Wednesday: Accent; Appen; Bega Cheese; Bravura Solutions; Eagle Health; Independence Group; Orocobre; OZ Minerals; Prime Media; Salmat.
    • On Thursday: Adelaide Brighton, Bellamy’s; Boral; Clinuvel Pharmaceuticals; Metro Mining; Ramsay Health; Regional Express; Village Roadshow; Virgin Australia; Woolworths.
    • On Friday: Austal; Chant West; Freedom Foods; Harvey Norman; Kingsgate; Sandfire Resources; Slater & Gordon.

Stay updated with the latest market and currency developments here.

 

DISCLAIMER

 

This Freightplus article contains information obtained from sources believed to be reliable and has been prepared in good faith and with all reasonable care. Freightplus makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this website.

 

Neither Freightplus (Australia) Pty Ltd, its related entities, nor any of its providers of information, have any liability to the user, or any other third party, for the accuracy of the information or models contained in this article, or for any errors or omissions therein, nor will Freightplus (Australia) Pty Ltd or any of its providers of information have any liability for the use, interpretation or implementation of the information or models contained herein by any person.

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