Weekly Market & Currency Developments – From Our Bankers

Each week Freightplus updates our community on the latest market and currency developments. Here are this week’s weekly market & currency developments.

Aussies go cold on ultra-low rates.

RBA expresses doubts. Aussie tourism shines.

Consumer sentiment; Reserve Bank Board minutes; Tourist arrivals

  • Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.2 per cent to 110.9 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.
  • Household spending intentions: The lift in retail spending intentions in August was reversed in September. But home buying intentions are holding at the high end of the range.
  • Reserve Bank: Minutes of the last Board meeting were released. Members “discussed the possibility that policy stimulus might be less effective than past experience suggests.” They also “noted that the housing market and other asset prices might be overly inflated by lower interest rates.”
  • Tourism: Tourist arrivals rose by 2.7 per cent in August to record highs with departures up by 1.5 per cent. There were record tourism inflows from nine separate countries including Hong Kong.
  • China inflation: Consumer prices rose 3.0 per cent in the year to September (forecast 2.9 per cent). Producer prices fell 1.2 per cent to September in line with forecasts.


The consumer confidence figures have implications for retailers and other consumer-focussed businesses. The Reserve Bank Board minutes provide guidance on interest rate settings. Tourism data is important for airlines, hotels and booking agents.


What does it all mean?

  • Just before the first rate cut in June, the consumer sentiment index stood at 118.6. Today the sentiment index stands at 110.9 points, a fall of 6.5 per cent. Aussie consumers may have liked rate cuts in the past when interest rates were at higher levels, but the current ultra-low rates have got consumers spooked. There seems to be a general perception that low rates indicate an economy in trouble, rather than one that just needs a push along. While the Reserve Bank’s mathematical models still perceive that rate cuts work to boost economic activity, the behavioural evidence is that they don’t – or at least that rate cuts have become ineffective.
  • If the Reserve Bank and Government want to stimulate spending, then the focus must be on boosting disposable incomes through tax cuts, spending vouchers or handouts.
  • A period of interest rate stability may help stabilise consumer sentiment and allow lower borrowing rates and thus the lift in purchasing power to work their magic through the economy.
  • Reserve Bank Board members had a lot on their minds at the October meeting. Should they hold back rate stimulus? Would rate cuts create an asset bubble? Does monetary policy still work? They are all reasonable questions, and it is probably fair to say that the answers were far from convincing.
  • A record numbers of tourists came to our shores in August – especially from Asia. In-bound tourism numbers were at record highs from nine separate countries, including Hong Kong. Whether motivated by the troubles in Hong Kong or a reflection of our low Aussie dollar, there has been a boost for Aussie tourism operators. Also of note, 19,200 Aussies travelled to Hong Kong in August, the lowest monthly result in 19 months.


What do the figures show?

Consumer Sentiment

  • The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.2 per cent to 110.9 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points held since 1990.
  • Three of the five major components of the index fell last week:
    • The estimate of family finances compared with a year ago was up from +9.5 points to +9.7 points;
    • The estimate of family finances over the next year was up from +22.7 points to +23.5 points;
    • Economic conditions over the next 12 months was down from -3.4 points to -4.4 points;
    • Economic conditions over the next 5 years was down from +5.8 points to +4.0 points;
    • The measure of whether it was a good time to buy a major household item was down from +26.8 points to +21.9 points.
  • The measure of inflation expectations was steady at 4.1 per cent.


Reserve Bank October Board minutes:

  • Last paragraph: “Members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target. The Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
  • Risks of lower rates: “Members also noted that the housing market and other asset prices might be overly inflated by lower interest rates. Members acknowledged that asset prices were part of the transmission mechanism of policy, including by encouraging home building. By themselves, higher asset prices were considered unlikely to present a risk to macroeconomic and financial stability. This assessment would need to be reviewed if rapidly increasing asset prices were accompanied by materially faster credit growth, weak lending standards and rising leverage. Although household debt was still considered high, members saw only a limited risk of excessive borrowing at the current juncture: household disposable income growth (and thus borrowing capacity) is weak; the memory of recent housing price falls is still fresh; and banks are still quite cautious in their appetite to lend. Nonetheless, members assessed that close monitoring of this risk was warranted.”
  • Delay rate cuts? “Members also considered the argument that some monetary stimulus should be kept in reserve to address any future negative shocks. However, that argument requires changes in interest rates to be the key driver of demand, rather than the level of interest rates, which experience has shown to be the more important determinant. Members concluded that the Board could reduce the likelihood of a negative shock leading to outcomes that materially undershot the Bank’s goals by strengthening the starting point for the economy.”
  • Ineffective policy? “Members also discussed the possibility that policy stimulus might be less effective than past experience suggests.”



  • Tourist arrivals rose by 2.7 per cent in August – the biggest rise in three months. Arrivals are up 5.1 per cent on the year.
  • Aussie tourist departures rose by 1.5 per cent in August after declining by 4.4 per cent in the prior two months. Departures are up 1.2 per cent on the year.
  • In August, tourists from Greater China (China and Hong Kong) totalled 158,200 (mainland China 129,800; Hong Kong 28,400), ahead of New Zealand (118,600).
  • Mainland China is the largest source of tourists to Australia. Over the past year 1,457,000 tourists came to Australia from China – the second highest annual result and up by 1.7 per cent on the year earlier.
  • A record 382,900 Indian tourists travelled to Australia over the year to August, up by 11.4 per cent on a year ago.
  • In August, there were record tourist inflows from Fiji, Thailand, Vietnam, Singapore, Hong Kong, Bangladesh, India, Pakistan and Canada,
  • And in the month of August a record number of Aussies travelled to Indonesia and Nepal.



  • In August, there were 62,500 permanent and long-term arrivals in Australia. The annual number of permanent and long-term overseas arrivals rose from 844,680 people to 846,510 in August, up by 3.0 per cent over the year.
  • In net terms (arrivals less departures) permanent and long-term overseas arrivals totalled 299,410 over the year to August – a 5-month high but still below the record high of 353,480 in the year to April 2009.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.
  • The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.


What are the implications for interest rates and investors?

  • Retailers need to put their faith in tax cuts rather than rate hikes. Unfortunately, if consumers remained spooked about ultra-low interest rates, they could decide to save more of their tax offset payments, rather than spend. A period of interest rate stability may prove important to lift spending intentions.
  • The Reserve Bank must start entertaining the notion that recent rate cuts have made consumers more worried about the outlook for the economy and their own individual finances rather than more positive.
  • Lower interest rates have served to push down the Aussie dollar, thus weighing on consumer sentiment and consumer spending. And while a lower Aussie dollar boost business competitiveness, business confidence has actually fallen as rates moved to historic lows.
  • More tourists are coming to Australia and they staying longer – it is an impressive combination that is adding spending momentum to the economy.
  • Economists still expect a rate cut in February 2020 in line with forward guidance by the Reserve Bank. But tax cuts are still preferred to rate cuts in order to boost spending.


Global growth to lift, but risk is US-China trade

Economic & financial news

  • Global economic growth: The International Monetary Fund expects global economic growth to lift from 3.0 per cent to 3.4 per cent in 2020.
  • Global sharemarkets lift: The IMF forecasts were largely ignored by global investors – seen as ‘old news’. Markets have rallied in response to solid earnings results in the US.


The global economic growth forecasts can be used by investors to assess risks for globally-focussed companies.


What do the figures show and what does it mean?

  • The International Monetary Fund (IMF) has again downgraded forecasts for the global economy. The downgrades are clearly not surprising in light of softer country-level statistics in recent months. Rather, the latest figures attempt to quantify the impact that both the US-China trade war and uncertainty about Brexit have had in slowing investment, spending, employment and production across the globe.
  • The IMF now expects 3.0 per cent growth in the global economy this year and growth of 3.4 per cent in 2020. In July the IMF forecast growth of 3.2 per cent and 3.5 per cent respectively.
  • The Australian economy is now expected to have grown by 1.7 per cent in 2019, but growth is tipped to lift to 2.3 per cent in 2020.
  • It is always important to remember that forecasts are just that – forecasts, or best guesses about the future. If the Phase 1 trade agreement between the US and China is ratified; and if a Brexit deal is secured, the outlook for the global economy will brighten markedly.
  • In reality, trade will likely remain a fractious issue for the US, China and also Europe over the next 12 months. Businesses will just need to learn how to profitably operate in the uncertain times.
  • The IMF estimates that if all possible US and China tariff increases are imposed then global growth would be reduced by 0.8 percentage points. Still, if the trade stoush was removed from the environment and tariff increases were reversed then presumably growth could lift in 2020, but probably by a smaller magnitude.
  • At present, central banks are easing monetary policy in an attempt to maintain economic momentum. Some countries may also need to ease fiscal policy. Notably Germany was singled out by the IMF as one country that could do more in providing fiscal stimulus.
  • Here in Australia, the Reserve Bank has been cutting interest rates to stimulate the economy. And the government has been making tax offset payments to taxpayers. Established housing markets clearly have strengthened in response to the lower interest rates. Also rate cuts have driven the Aussie dollar lower, thus supporting exports. But Aussie consumers have understandably been less excited at the lower Aussie dollar. A lower Aussie reduces the appeal of overseas holidays as well as the attractiveness of buying goods from overseas.


What is the importance of the economic data?

  • The International Monetary Fund releases detailed forecasts for the global economy in April and October and provides updates on the forecasts in January and July. Probably more important than the forecasts is the detailed historic country-level economic and financial data. The data assists businesses in planning and strategic decisions.


What are the implications for interest rates and investors?

  • Investors have ignored the latest IMF forecasts, concluding that the estimates are ‘old news’. More important for investors is the fact that the US earnings season (profit-reporting season) has got off to a good start. If companies are making money then this should be reflected in company share prices and therefore in sharemarket indices.
  • In the US, shares in banks rose in response to latest earnings: JP Morgan Chase rose by 3.0 per cent, Wells Fargo rose by 1.7 per cent and Citigroup rose by 1.4 per cent. Also after encouraging earnings data, shares in UnitedHealth rose by 8.2 per cent – its best gain in eight years – and shares in Johnson & Johnson rose by 1.6 per cent.
  • There was also optimism on Brexit overnight. Still time will tell if the optimism is misplaced. And the Phase 1 trade deal between the US-China has its critics and supporters, but overall investors are placated for now.
  • While some Aussies remain yet to be convinced, the local economic slowdown is partly a function of a softening global economy. Another factor has been the cautious spending of Aussie consumers in response to sluggish wage growth. The Reserve Bank has probably done as much as possible to lift local growth. Future stimulus will need to come from Federal and State governments. Fortunately, with finances in good shape, governments are well placed to implement any necessary measures to lift consumer spending.


Investor Signposts: Week Beginning October 20 2019

Australia: Job vacancies, manufacturing and services sector activity data in the spotlight

  • In Australia, investors will be starved of major economic data releases and monetary policy-related communication in the week ahead. But skilled internet job vacancies data, ANZ-Roy Morgan’s weekly consumer sentiment survey and the manufacturing and services sector activity gauges will pique most interest.
  • The week kicks-off on Tuesday when the regular weekly measure of consumer confidence is issued by ANZ and Roy Morgan. Sentiment has weakened with consumers increasingly concerned about the economic outlook and their finances. Tepid wages growth, rising unemployment and elevated mortgage debt are all contributing to consumer caution. But it is hoped that an improvement in property market sentiment, lower mortgage rates and tax relief will eventually lift the spirits of consumers, boosting spending.
  • On Wednesday, the Department of Employment issues the skilled job vacancies report for September. The Internet Vacancy Index decreased by 0.1 per cent in August to be down by 6 per cent over the year. Leading indicators of jobs growth have lost momentum with vacancies down by 15.4 per cent in Sydney and 9.4 per cent in Melbourne over the year to August. But public sector jobs growth momentum in Canberra appears set to continue with job vacancies up by 10.1 per cent.
  • Also on Wednesday, the Reserve Bank Assistant Governor (Financial Markets) Christopher Kent participates in a panel discussion at the International Swaps and Derivatives Association in Sydney at 9.20am AEDT.
  • On Thursday, October ‘flash’ (or early) estimates on activity in the manufacturing and services sectors are released.
  • On Thursday, the Australian Bureau of Statistics releases detailed labour force estimates for September.
  • And on Friday the ABS releases annual national accounts.


Overseas: Housing, industrial and services data in focus

  • In both China and the US in the coming week, housing data will be a key focus. And the release of ‘flash’ October purchasing manager indexes and key regional US manufacturing surveys will garner investor attention.
  • The week begins on Monday in China when September home price data is issued. Average annual prices of new homes in 70 Chinese cities increased by 8.8 percent in August, the weakest growth rate since October.
  • In the US on Tuesday, the regular weekly reading on US chain store sales is due with data on existing home sales and the influential Richmond Federal Reserve Manufacturing index. Existing home sales lifted by 1.3 per cent to 5.49 million in August, with a reduction in mortgage rates serving to boost home buyer demand.
  • On Wednesday, the weekly reading on mortgage applications is issued as well as the Federal Housing Finance Agency’s (FHFA) home price index for August. US home prices were up by 5 per cent over the year to July.
  • On Thursday, the usual weekly data on claims for unemployment insurance (jobless claims) are released, together with durable goods orders, new home sales and the Kansas City Federal Reserve manufacturing index.
  • Durable goods orders – seen as a proxy measure of business investment – rose by 0.2 per cent in August. Defence orders jumped by 15.4 per cent, but civilian aircraft orders – especially from Boeing – dropped by 17.1 per cent. Global trade uncertainty has restrained US business investment, impacting recent small business and regional Federal Reserve surveys.
  • Also on Thursday, ‘flash’ October purchasing manager indexes are issued across the globe. Manufacturing activity is contracting in key export-focused economies, such as China, Germany and Japan. And there are growing worries over the potential spillover into the larger services sector and broader economy.
  • On Friday in the US, the University of Michigan releases its ‘final’ reading on consumer confidence for October. The ‘preliminary’ lift in sentiment was welcomed by investors, suggesting that solid consumer spending will continue to drive economic growth. But longer-term consumer inflation expectations fell to a record low 2.2 per cent, suggesting that US policymakers will probably have to cut interest rates further to hit their 2 per cent target.
  • On Sunday October 27 in China, the September industrial profits figures are scheduled. In the year to August, profits were down by 2 per cent. The slowdown in industrial production and sales are weighing on producer prices and company profits amid trade uncertainty.


Financial markets

  • The US earnings (profit-reporting) season moves up a gear in the coming week. According to FactSet, S&P 500 companies are expected to report a decline in earnings of around 4.6 per cent for the September quarter. Companies expected to report earnings this week, include:
  • On Monday: Halliburton, Kaiser Aluminium and Moelis.
  • On Tuesday: 3M, Allegheny Technologies, Biogen, Harley-Davidson, Hasbro, Kimberly-Clark, Lockheed Martin, McDonald’s, Procter & Gamble, United Parcel Services, Whirlpool.
  • On Wednesday: Advanced Micro Devices, AT&T, Boeing, Caterpillar, Corning, Facebook, Ford, Freeport- McMoRan, Hilton, Mattel, Microsoft, Visa.
  • On Thursday: Amazon.com, American Airlines, Amgen, Chipotle, Intel, ResMed, Under Armour.
  • On Friday: Colgate-Palmolive, Exxon Mobil, Goodyear, Phillips 66, Twitter, Verizon, Weyerhaeuser.


Stay updated with the latest market and currency developments here.



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