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.


Regional jobs: Micro, not macro focus required

Detailed job market data; Purchasing Manager survey

  • 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.
  • Job market perspectives: Participation rates for Aussies aged 60-64 as well as those 65 years plus are at fresh record highs. The number of people not in the workforce is at 7-year lows.
  • Purchasing manager survey: The ‘flash’ purchasing manager survey for manufacturing fell from 50.3 to 50.1 in October. The services index fell from 52.4 to 51.8. And the composite reading eased from 52.0 to 50.7. Any reading above 50 indicates expansion of activity. 


The detailed job data can influence interest rate policy and government spending decisions. The purchasing manager surveys provide timely readings on activity in the economy.


What does it all mean?

  • Both the Reserve Bank and Federal Treasury refer to the “strength” of the job market. And while the jobless rate has only eased gently to 5.2 per cent, the reading is historically low. The workforce participation rate is near record highs. And jobs have increased for a record 36 months. Simply, more people are looking for work and finding it, meaning that spending power has continued to lift.
  • But there is marked polarisation between job ‘haves’ and ‘have nots’. And this gap won’t close with more rate cuts – it will require action by Federal, State/Territory and Local Governments to create jobs outside of NSW and Victoria. That is, policy that is more micro rather than macro.
  • Of the 87 SA4 regions, 33 have a jobless rate either at or below the Reserve Bank’s 4.5 per cent ‘target level’. Rate cuts would probably only be successful in driving Sydney and Melbourne property prices higher than drive jobless rates lower. 


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 September and rolling annual averages were used for assessment to adjust for seasonality.
  • In the year to September the highest unemployment rate could be found in the Queensland Outback (13.3 per cent), followed by Moreton Bay North (Qld 8.9 per cent) and Logan-Beaudesert (Qld) and Adelaide North (both 8.0 per cent).
  • Lowest unemployment rates can be found in Sydney: Sutherland and Inner West (2.2 per cent). The Warrnambool and South West region in Victoria follows (2.7 per cent).
  • If the latest unemployment rates are compared with ‘normal’ levels (decade averages), encouragingly 62 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 September was 4.7 per cent – almost 37 per cent lower than the decade average of 7.5 per cent.
  • At the other end of the scale, the 13.3 per cent jobless rate in Queensland-Outback was almost 41 per cent above the decade-average of 9.4 per cent.
  • Warrnambool, Bendigo, Cairns, Richmond-Tweed and the NSW New England and North West are areas showing what is possible with job creation.


Detailed workforce data

  • In the year to September a record 58.53 per cent of people aged 60-64 years were in the job market as well as a record 14.58 per cent of people aged 65 years plus. Workforce participation of those aged 15-19 years hit a 12- month low of 54.88 per cent.
  • In the year to September, 3.56 million people weren’t in jobs or were looking for work – the lowest level in seven years.


Purchasing manager’s survey

  • The Markit ‘flash’ purchasing manager survey for manufacturing fell from 50.3 to 50.1 in October. The services index fell from 52.4 to 51.8. And the composite reading eased from 52.0 to 50.7. Any reading above 50 indicates expansion of activity.
  • “Although business activity increased for the second month running in October, the rate of expansion softened and was only marginal. This reflected a weaker rise in services activity, as manufacturing production stabilised following a fall in September.”
  • “New orders rose at the weakest pace for six months. As with activity, service providers saw growth of new business soften in October. Meanwhile, manufacturing new orders decreased for the first time in the three-and a-half year survey history. This was despite a marginal increase in manufacturing new export orders.”


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.
  • The Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.


What are the implications for interest rates and investors?

  • In many parts of the country – in fact around 40 per cent
    of regional Australia – the jobless rate is below the
    Reserve Bank full employment target of 4.5 per cent.
    Many parts of Sydney claim a jobless rate of 2-3 per cent.
    The question is how much further these jobless rates can fall with more rate cuts. The Reserve Bank may disagree, but the benefit of future rate cuts is questionable.
  • Federal, State and Local governments need to focus on skill gaps and education and training needs as well as taking a more regional focus for job creation.
  • How close is Australia from a peak in workforce participation?The answer lies with senior Australians and the number who now re-think permanent retirement. More people in work serves to boost spending power.
  • Economists tip a rate cut on February 4 2020.


Federal Budget back in the red

Monthly Financial Statements

  • Budget position: Just over a week ago the July and August financial statements were released by the Department of Finance. In this report we look behind the numbers.
  • Deficits return: In the twelve months to August 2019, the Budget deficit stood at $4,826 million (0.2 per cent of GDP).
  • Tax refunds: Over July and August, tax refunds have totalled almost $16 billion, up 31 per cent on the same period a year ago. 


The monthly Budget figures can provide insights on the broader economy and policy settings. If fiscal settings are tight, the Reserve Bank may allow easier monetary settings.


What does it all mean?

  • The Budget position has deteriorated in the past few months. In 2018/19 the Budget was broadly balanced (deficit of $690 million). In fact modest surpluses were recorded on a rolling annual basis in March and April. Now the deficit for the full 12-month period to August (rolling annual total) stands at $4,826 million or 0.2 per cent of GDP. Clearly the figures do bounce around from month-to-month but the trends are worth watching. Especially given expectation of a $7 billion surplus this year.
  • The finance boffins noted that the past two months have been characterised by “lower than expected revenue and higher expenses.” The tax refunds are flowing – in fact the payments are around $1 billion higher than expected by the Department of Finance. And election promises are likely to boost spending over the next few months. That is hardly negative – fiscal policy needs to complement the expansionary monetary policy in the current environment. 


What do the figures show?

  • In the twelve months to August 2019, the Budget deficit stood at $4,826 million. Over the same 12-month period to August, the fiscal balance was in deficit by $987 million with the net operating balance in surplus by $5,202 million.
  • Smoothed revenues (twelve months to August) were up 8.6 per cent on a year ago – the slowest growth in 14 months. Smoothed expenses were up by 4.9 per cent.
  • Annual company tax collections are up 8.7 per cent over the year after recording double-digit annual results over 2017/18 and 2018/19. Net individual tax is up 4.1 per cent. But tax refunds are up 12.7 per cent on a year ago.
  • In terms of expenses, health spending is up 12.4 per cent while public debt interest is actually down 1.1 per cent, the first decline for over three years (39 months).
  • The Department of Finance noted: “The net operating balance for the year to 31 August 2019 was a deficit of $8,418 million, which is $2,836 million higher than the 2019-20 Budget profile deficit of $5,582 million. The difference results from lower than expected revenue and higher expenses.”
  • In terms of the underlying cash balance, “The underlying cash balance for the financial year to 31 August 2019 was a deficit of $9,669 million, which is $664 million higher than the 2019-20 Budget profile deficit of $9,005 million.”
    • Receipts: “Total receipts were $456 million lower than the 2019/20 Budget profile.”
    • Payments: “Total payments were $146 higher than the 2019/20 Budget profile.”
  • Federal Treasury and the Department of Finance currently expect an underlying surplus of $7,054 million for 2019/20.
  • In terms of the fiscal balance the Department of Finance noted: “The fiscal balance for the year to 31 August 2019 was a deficit of $8,097 million, which is $1,853 million higher than the 2019-20 Budget profile deficit of $6,243 million. The difference results from lower than expected revenue, higher expenses and lower net capital investment.”
  • Receipts from the Goods and Services Tax stood at $66,493 million in the twelve months to August, up 0.5 per cent on a year ago and down from the record $67,574 million in receipts for the year to December 2018.
  • Actual GST receipts for the two months to August stood at $12,756 million, just above the Budget ‘profile’ of $12,674 million.


What is the importance of the economic data?

  • The Department of Finance releases the Government Financial Statements (Niemeyer Statement) almost every month. The statement allows investors to track the current Budget position and provides insights into the effectiveness of fiscal policy.


What are the implications for interest rates and investors?

  • Those calling for less restrictive fiscal policy in the current environment have their wishes granted. Expenses are growing at the fastest annual pace for 41⁄2 years. Revenues are still outpacing growth of expenses but the gap is narrowing.
  • Tax refunds are flowing. Over July and August tax refunds totalled almost $16 billion, up almost $4 billion (31 per cent) on the same period in 2018. Over 2018/19, refunds are tipped to be $36.9 billion, up $7.4 billion or 25 per cent on a year ago. Now the question is what proportion of refunds is spent, saved or used to pay down debt.


Investor Signposts: Week Beginning October 27 2019

Australia: Inflation data hogs the spotlight

  • In Australia, investors will be focussed on the latest inflation report. But the latest data on home prices and the gauges of activity in manufacturing will also compete for attention.
  • The week kicks-off on Monday when our State of the States report is released – a quarterly report in its 11th year that assesses the performance of state and territory economies.
  • On Tuesday, the Reserve Bank Governor, Philip Lowe, is scheduled to deliver the Sir Leslie Melville Lecture in Canberra (5.45pm AEDT).
  • Also on Tuesday, the regular weekly measure of consumer confidence is issued by ANZ and Roy Morgan. Consumers remain wary in the current environment.
  • On Wednesday, the Australian Bureau of Statistics (ABS) issues the Consumer Price Index (CPI) for the September quarter. Inflation is under control but the drought may show up in higher food prices in the quarter.
  • Headline inflation is tipped to rise 0.5 per cent, lifting the annual rate from 1.6 per cent to 1.7 per cent. The main measure of ‘underlying’ prices – the trimmed mean – is expected to lift by 0.4 per cent, leaving the annual rate near 1.6 per cent.
  • On Thursday, there are three indicators to spark investor interest: international trade prices (exports and imports); building approvals; and private sector credit (or loans outstanding).
  • Building approvals is a forward-looking measure of new construction – council approvals to building new homes or commercial buildings – the latter being in the strongest shape at present.
  • Private sector credit likely rose by 0.3 per cent in September with an increase in new home loans starting to lift the volume of outstanding loans.
  • On Friday, CoreLogic issues the Home Value Index for October – the most timely measure of home prices. On the data currently available, home prices may have risen by 1 per cent in October, led by Melbourne (up 1.4 per cent) and Sydney (1.3 per cent). Rate cuts still work – at least in lifting home prices.
  • Also on Friday both CBA and the AiGroup release their surveys of purchasing managers that are employed in the manufacturing sector.


Overseas: US Federal Reserve meets

  • Arguably one of the last ‘big’ weeks for finance events in 2019 lies ahead. Not only does the US Federal Reserve meet to decide interest rate settings, but also US jobs and economic growth data are released.
  • The week begins in China on Sunday with the September industrial profits figures due for release. 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.
  • In the US on Monday, the Chicago Federal Reserve national activity index is released with the Dallas Fed manufacturing index and export/import figures for September.
  • On Tuesday the US Federal Reserve Open Market Committee (FOMC) begins a two-day meeting. When the decision is released (Thursday morning 5am AEDT) a 25 basis point (quarter per cent) rate cut is expected to be delivered. But the text is likely to downplay the potential for further cuts in the short-term.
  • In economic data on Tuesday, consumer confidence is expected together with the S&P/Case Shiller home price series, pending home sales and weekly chain store sales figures.
  • On Wednesday, the weekly reading on mortgage applications is issued as well as the ADP National Employment Report and the first look (‘flash’ reading) on economic growth in the September quarter. The economy grew at a 2 per cent annual rate in the June quarter. And the ADP survey measures data on private sector jobs – measuring actual payroll data. Private sector jobs rose by 135,000 in September.
  • On Thursday, the usual weekly data on claims for unemployment insurance (jobless claims) are released, together with the Challenger series on job cuts, the quarterly employment cost report and personal income/spending. The latter contains the Federal Reserve’s preferred measure of inflation.
  • Also on Thursday in China the ‘official’ purchasing manager surveys on manufacturing and services sectors are released. The Caixin manufacturing survey is released on Friday.
  • On Friday in the US, the non-farm payrolls report is released. The number of jobs may have lifted by 95,000 in October after a gain of 136,000 in September. And the jobless rate stands at a 50-year low.
  • Also on Friday the ISM purchasing manager’s survey for manufacturing is released together with data on new vehicle sales.


Stay updated with the latest market and currency developments here.



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