Weekly Market & Currency Developments – From Our Bankers

Here are this week’s weekly market & currency developments. Each week Freightplus updates our community on the latest market and currency developments. Here are the developments for the week of the 6th of October.

 

Biggest lift in home prices in 21⁄2 years

Home prices; Manufacturing

  • Home prices: The CoreLogic Home Value Index of national home prices rose by 0.9 per cent in September, the biggest increase since March 2017. And capital city home prices rose by 1.1 per cent – also the biggest lift in 21⁄2 years. Regional home prices rose by 0.1 per cent in the month.
  • Sydney & Melbourne home prices: Sydney home prices lifted by 1.7 per cent in September after rising 1.6 per cent in August. And Melbourne home prices rose by 1.7 per cent, after rising 1.4 per cent in the prior month.
  • Regional results: Of the 88 SA4 regions across Australia, home prices were up on a year ago in 21 regions. Home prices in the NSW Riverina rose by 4.5 per cent over the year.
  • Manufacturing sector: The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 53.1 points to 54.7 points in September. But the CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell from 50.9 points to 50.3 points. Any reading over 50 indicates expansion. 

 

Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.

 

What does it all mean?

  • Aussie property market conditions continue to improve. The lift in home prices – especially in Sydney and Melbourne – can be traced to the Federal Election in May. Once the election uncertainty was resolved, owner- buyers and investors returned to the market. Two rate cuts have also supported demand for homes.
  • Still, in many regions, home prices are lower than a year ago. In fact there were only annual gains in home prices in 21 of the 88 regions in September. So there is still work to be done.
  • Home prices in the NSW Riverina were up 4.5 per cent on the year with prices in Queensland’s Mackay region up 4.4 per cent. Tasmania is still the standout for home price increases with Western Australia still struggling.
  • The latest data on the manufacturing sector is mixed but the results from the long-running AiGroup survey are encouraging. A weak Aussie dollar is providing a key plank of support for export sectors.

 

What do the figures show?

Home prices

  • The CoreLogic Home Value Index of national home prices rose by 0.9 per cent in September, the biggest increase since March 2017. But home prices are still 3.9 per cent lower over the year.
  • In capital cities, prices rose by 1.1 per cent but were still down 4.3 per cent over the year to September. House prices rose by 1.2 per cent and apartment prices lifted by 1.0 per cent. House prices were down 5.0 per cent on a year ago and apartments were down by 2.6 per cent.
  • In regional areas, home prices rose by 0.1 per cent with houses up 0.1 per cent and apartment prices up by 0.4 per cent. Regional home prices are down 2.5 per cent on the year.
  • The average Australian capital city house price (median price) was $631,045 and the average unit price was $543,192 in September.
  • Dwelling prices rose in four of the eight capital cities in September. Home prices rose by the most in Sydney (up 1.7 per cent), together with Melbourne (up by 1.7 per cent), and followed by Canberra (up by 1.0 per cent) and Brisbane (up 0.1 per cent). Prices fell in Darwin (down by 0.2 per cent), Hobart (down by 0.4 per cent) and Perth (down by 0.8 per cent). In Adelaide home prices were flat in the month.
  • Home prices were lower than a year ago in six of the eight capital cities in September. Prices fell the most in Darwin
    (down by 9.5 per cent), Perth (down by 9.0 per cent), Sydney (down 4.8 per cent), Melbourne (down 3.9 per cent), Brisbane (down 2.1 per cent) and Adelaide (down 1.1 per cent). But prices were still up in Canberra (up by 1.3 per cent) and Hobart (up by 2.5 per cent).
  • Total returns on national dwellings fell by 0.2 per cent in the year to September with houses down by 0.8 per cent on a year earlier, but units were up by 1.7 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 12.1 per cent over the year to September.

 

Manufacturing Purchasing Managers’ Indexes

  • The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 53.1 to 54.7 points in September. But the IHS Markit Manufacturing Purchasing Managers’ Index fell from 50.9 points to 50.3 points in September. Any reading over 50 indicates expansion.
  • According to AiGroup, “Four of the six sectors in the Australian PMI® expanded in September and two contracted (trend). ‘Food & beverages’ remains the leading sector, followed by a resurgence in ‘machinery & equipment’, which has benefited from increased demand from the mining and defence sectors. The metals sector contracted but at a slightly slower rate in September, while the small and diverse ‘TCF paper & printing’ sector fell further into contraction.”
  • “Four of the seven activity indices in the Australian PMI® indicated accelerating and expanding conditions in September. Three indices indicated slowing but broadly stable conditions. Employment and new orders were strong, but production, sales and exports all weakened to be roughly stable in September.”
  • According to Markit, “The latest survey data indicated that order book growth reached a survey-record low in September despite a further expansion in new export sales.”

 

What is the importance of the economic data?

  • The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
  • The AiGroup 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?

  • Recovery is proceeding in the established home market led by Australia’s two most populous cities. Low interest rates, firm employment growth and a better balance between supply and demand will support home prices over the coming year.
  • The recovery in home prices is being led by the top of the market. Similarly the downturn in home prices over the previous 21⁄2 years was also driven by the top of the market. Home values in the bottom 25 per cent of properties by value have actually been relatively stable in the past few years.
  • The lift in home prices will boost wealth and consumer spending.
  • Manufacturing conditions are showing signs of brightening. But the evidence is in its early days. It is important to note that manufacturing is struggling across the world – buffeted by the US-China trade war.
  • We expect a rate cut today and another reduction in February 2020.

 

Reserve Bank Governor mulls road ahead.

Cash is still king. Inflation goes missing.

Reserve Bank Governor speech; Banknotes; Outlook for interest rates

  • Speech from Reserve Bank Governor: Governor Philip Lowe delivered a speech, “Remarks at Reserve Bank Board Dinner”.
  • Banknotes on issue: The Reserve Bank says “the stock of banknotes on issue, relative to the size of the economy, is close to the highest it has been in 50 years.” On average the amount of cash in the economy translates to $3,180 per person.
  • Interest rates: References to the job market far exceeded those of inflation in the latest interest rate decision.

Speeches from the Reserve Bank Governor can influence interest rate and currency markets.

 

What did he say?

Rate cut

  • The Reserve Bank Governor covered a lot of ground in last night’s speech. Governor Lowe spoke about the background to the latest rate cut. He also spoke about the up-coming (Friday) release of the Financial Stability Review. And Governor Lowe mulled about the demand for banknotes in Australia.
  • In terms of the latest rate cut, Governor Lowe put the rate cut in a global context. Simply, investors across the globe are sitting on the sidelines, waiting for the US-China trade deal to be concluded. There is a significant supply of savings but a paucity of investment happening.
  • “Like many things in economics it comes down to supply and demand. When the global supply of savings is high relative to the global demand for funding to invest in new capital, the price of savings – or the global interest rate – is going to be low. There are certainly other factors at play as well, but savings and investment decisions are at the heart of the issue.”
  • So central banks across the globe have been cutting rates. And Australia is part of that trend. The Governor has remarked before that if we don’t cut rates in line with other countries then the Aussie dollar may lift, reducing the competitiveness of Australian goods and services.
  • At home, the RBA says that economic conditions are improving: “the economy appears to have reached a gentle turning point”. But while conditions are improving and expected to keep improving, progress remains slow. So the Board decided to cut rates again.
  • “We are seeking to make more assured progress towards both full employment and the inflation target. We still expect to make progress on both fronts, but that progress is slower than we would like.”
  • The Governor makes the point that “monetary policy still works”. But the Governor also notes that “the Board recognises that the impact of monetary policy on the economy has changed over time, and that there can be some undesirable side effects from low interest rates.”
  • In other words, there are winners (borrowers) and losers (depositors) from rate cuts. But the belief is still – in a broader or macro sense – that lower rates “promote the collective economic welfare of the Australian people.”

 

Financial Stability Review

  • The Governor makes a number of points. Governor Lowe says that there is a lot of uncertainty across the globe. But despite this “credit spreads are low and asset prices are generally high. At our meeting today we talked about the possibility that a shock somewhere in the global system could cause a recalibration, leading to a disruptive repricing of risk.”
  • Governor Lowe also reflects on the strength of the financial system and tightening of lending standards.
  • Also Governor Lowe notes that consumer finances are well positioned (have substantial buffers) despite high debt levels: “the balances in mortgage offset accounts and redraw facilities amount to 16 per cent of outstanding housing debt. This is equivalent to around 21⁄2 years of required mortgage payments at current interest rates.”
  • One are to watch is Western Australia where there has been a lift in the number of borrowers where their current loan balance exceeds the value of their property.

 

Banknotes on issue

  • The Governor also said that a new $20 note will be issued on October 9. In this context Governor Lowe indicated that demand for banknotes remains high. In fact, “the stock of banknotes on issue, relative to the size of the economy, is close to the highest it has been in 50 years.”
  • So where are all the notes? The RBA “estimate that around a quarter are used to make legitimate day-to-day transactions within Australia. It also appears that between half and three quarters are held as a store of value in safes, under beds and at the back of cupboards, both here in Australia and elsewhere around the world. We estimate that a further 4 to 8 per cent are used in the shadow economy, either to hide transactions from the tax office or to undertake illegal transactions. Finally, it appears that between 5 and 10 per cent of banknotes are either simply lost, maybe at the beach, or destroyed, perhaps in a natural disaster.”

 

Latest economic data: Banknotes in circulation

  • The value of all banknotes in circulation stood at $81.02 billion at the end of September, up 4.4 per cent over the year, the slowest growth in six months.
  • The value of all $100 notes in circulation stood at $36.80 billion at the end of September, up 5.4 per cent on a year ago and the fastest rate in seven months. In smoothed terms, annual growth of $100 notes in circulation is the fastest in 21⁄2 years.

 

Latest interest rate decision

  • The importance of the job market in interest rate decisions was highlighted yesterday. There were 17 references to the job market or wages in the interest rate decision. By contrast ‘inflation’ was mentioned just eight times.
  • The Reserve Bank still conducts monetary policy with the aim of keeping annual inflation between 2-3 per cent over time. But underlying inflation (trimmed mean) has been below the target for 31⁄2 years. With inflation contained, the RBA is more confident of running the economy at a faster pace. In fact the new estimate of “full employment” is an economy with a 4.5 per cent jobless rate rather than 5 per cent.
  • The aim of the RBA is to run the economy at a faster rate, boosting jobs and lowering the jobless rate, with the tighter jobless rate serving to lift wages and prices.
  • Given that the stock of debt exceeds deposits, the Reserve Bank believes that rate cuts still work to boost borrowing, spending and employment.
  • But the actual number of consumer depositors substantially exceeds the number of those with loans. CBA report that it has 1.6 million home loan customers and 6 million savings and investments customers. NAB reports 930,000 home loan customers and 3 million savings customers. The ANZ says it has five times more savings and investments customers than home loan customers. At low interest rates these depositors may be more reticent to spend.
  • In terms of borrowers, some will respond to rate cuts by trimming repayments to unleash spending power. But others will elect to maintain instalments and get ahead in reducing outstanding debt. If more people elect to maintain loan repayments, there may not be the boost to spending as policymakers expect.
  • Further, if Aussies view super-low interest rates as a sign of economic weakness, again there may not be the same boost to spending as policymakers expect.
  • In coming months, there will be much debate on the effectiveness of rate cuts.

 

What is the importance of the economic data?

  • On the first trading day or each month, the Reserve Bank releases data on the amount of banknotes in circulation. The data may provide guidance on liquidity in the economy and saving behaviour of consumers.

 

What are the implications for interest rates and investors?

  • Aussies tend to value $100 notes for their “store of value”. And, as the RBA Governor says, Aussies may accumulate the cash and store the notes in “safes, under beds and at the back of cupboards.” A lift in demand for $100 notes has occurred in the past in uncertain times, such as the global financial crisis. The lift in demand for $100 notes in recent months needs to be watched.
  • The Reserve Bank Governor still believes that rate cuts work, despite the super-low nominal levels. And as long as that belief is held, further rate cuts are possible.
  • Economists expect the next rate cut to be delivered in February 2020. Stable rates over the next two meetings will give Board members the opportunity to see the impact of previous rate cuts on the economy.

 

Trade surplus soars to new highs. Services sector expands. SUV sales lift.

Services sector gauges; New vehicle sales; International trade

  • Foreign trade: The trade surplus fell to $5.93 billion in August from $7.25 billion in July. Australia has recorded 20 successive monthly trade surpluses. The rolling annual surplus was a record $58.59 billion in the year to August. Exports to China have hit new highs.
  • New highs: Over the year to August, exports hit new highs in Victoria, Queensland, Western Australia and the Northern Territory.
  • Services sector: The Australian Industry Group (AiG) Performance of Services Index (PSI) rose from 51.4 points to 51.5 points in September. The CBA/Markit Services Purchasing Managers’ Index (PMI) rose from 49.1 points to 52.4 points. A reading above 50 indicates an expansion of services sector activity.
  • New vehicle sales: In September, 88,181 new vehicles were sold, down by 6.9 per cent over the year. In the twelve months to September, sales totalled 1,083,570 units, down 8.2 per cent on a year ago and the biggest annual decline in almost a decade (November 2009).

 

The services sector gauge highlights conditions in the sector as well as providing guidance on the economy more generally. The vehicle sales data provides guidance on consumer spending as well as conditions for the Autos and Components sector of the sharemarket.

 

What does it all mean?

  • Over the past year Australia posted a record trade surplus of almost $60 billion. And it is clear that our relationship with China explains much of the strong result. Exports to China continue to soar to fresh highs, so much so that over 37 per cent of all our exports are destined for mainland China. Add in Hong Kong and the export share lifts to 40 per cent.
  • It is clear that Australia has a vested interest in wanting the Chinese economy to do well. But we are also posting near record exports with the US. The US-China trade war isn’t hurting Australia but clearly we would be hoping for some resolution of the trade stoush when talks are held late next week.
  • The services sector accounts for around 60 per cent of the economy. So the increases in the two key activity gauges for the sector line up with Reserve Bank rhetoric about a gentle turning point being achieved for the Australian economy.
  • There are signs of a bottoming in the new vehicle market. Sales of sports utility vehicles are up on a year ago. And the 6.9 per cent fall in overall vehicle sales was the second ‘best’ result in 11 months. The stabilisation of home prices across the nation would be providing confidence for new vehicle buyers.

 

What do the figures show?

New vehicle sales

  • The Federal Chamber of Automotive Industries reported: “The September 2019 market of 88,181 new vehicle sales is a decrease of 6,530 vehicle sales or -6.9 per cent on September 2018 (94,711) vehicle sales. September 2019 had the same number of selling days (24.6) as September 2018 and this resulted in a decrease of 265.4 vehicle sales per day.”
  • “The Passenger Vehicle Market is down by 5,594 vehicle sales (-18.3 per cent) over the same month last year; the Sports Utility Market is up by 441 vehicle sales (1.1 per cent); the Light Commercial Market is down by 1,041 vehicle sales (-5.4 per cent); and the Heavy Commercial Vehicle Market is down by 336 vehicle sales (-9.6 per cent) versus September 2018.”
  • Sales across states and territories over year to September: NSW (down 10.6 per cent); Victoria (down 7.6 per cent); Queensland (down 4.1 per cent); South Australia (up 16.2 per cent); Western Australia (down 6.5 per cent); Tasmania (down 21.6 per cent); Northern Territory (down 21.6 per cent); ACT (down 10.0 per cent).
  • The biggest selling vehicle in August was the Toyota Hi-Lux (3,364) from Ford Ranger (3,116) and Mitsubishi Triton (3,001).
  • The 1.1 per cent annual increase in sales of SUVs was only the second annual gain recorded in 11 months.
  • The rolling annual total of new vehicle sales in August was 1,083,570, down 8.2 per cent on the year – the biggest annual decline in almost a decade (year to November 2009).

 

Services Purchasing managers’ indexes

  • “The Australian Industry Group Australian Performance of Services Index (Australian PSI®) rose by 0.1 points to 51.5 points in September 2019 (seasonally adjusted). It was the second month of mildly positive conditions following a weak month in July, as trading conditions for some businesses returned to similar levels seen earlier in the year. Results above 50 points indicate expansion in the Australian PSI®, with higher numbers indicating stronger rates of growth.
  • The Australian PSI® indicated expansion in three of the eight services sectors in September (trend). Among the business oriented sectors, only finance & insurance reported positive results. Among the consumer-oriented segments, the ‘health, education & community services’ sector was strongest and the hospitality sector was mildly positive. Two activity indicators in the Australian PSI® were positive and indicating growth in September; new orders picked up and supplier deliveries also rose. Sales remain contractionary and employment was flat.”
  • The Markit Services Purchasing Managers’ Index (PMI) rose from 49.1 points to 52.4 points in September – the fourth reading above 50 in five months. Readings above 50 signify expansion.
  • “Strengthening demand conditions, both abroad and at home, contributed to business activity returning to growth in September. Overall new business intakes rose at the fastest rate for three months, supported by rising service exports.”
  • “Sales growth was linked to increased marketing activities and low interest rates while a weaker Australian dollar also boosted overseas orders, according to anecdotal evidence. Higher inflows of new business also led to a further rise in backlogs of work.”

 

International trade – August

  • The trade surplus fell to $5.93 billion in August from $7.25 billion in July. Australia has recorded 20 successive monthly trade surpluses.
  • The rolling annual surplus was a record $58.59 billion in the year to August.
  • Exports of goods and services fell by 3.4 per cent (exports of goods fell by 4.5 per cent).
  • Imports of goods and services fell by 0.4 per cent (goods imports fell by 1.1 per cent).
  • Exports were up by 10.1 per cent on a year ago, while imports were up by 0.2 per cent.
  • Rural exports rose by 1.4 per cent in August. “Other” rural goods rose by 3 per cent with meat up 5 per cent. But wool exports fell 29 per cent.
  • Exports of non-rural goods fell by 3.5 per cent. Exports of metal ores and minerals (excluding gold) fell by 10 per cent and coal was down by 4 per cent. Gold exports fell 22 per cent. But mineral fuels rose by 10 per cent with metals (excluding gold) up 20 per cent.
  • Within imports, consumer imports fell by 0.9 per cent, capital goods imports fell by 1.9 per cent and intermediate goods imports fell by 3.8 per cent.
  • Consumption goods imports were up by 0.7 per cent on a year ago, capital goods imports fell by 11.9 per cent while intermediate goods imports were down by 1.7 per cent.
  • The net services deficit increased from $93 million to $204 million.
  • Australia’s annual exports to China rose from $138.0 billion in July to a new record high of $141.35 billion. Exports to China are up 30.3 per cent on a year ago. Exports to China account for 37.1 per cent of Australia’s total exports – a new record high.
  • Australia’s annual imports from China eased from a record-high of $78.49 billion in July to $78.13 billion in August. Annual imports were up by 11.8 per cent on a year ago. Imports from China accounted for 25.44 per cent of Australia’s total imports – down from a record 25.50 per cent in July.
  • Australia’s rolling annual trade surplus with China rose from $59.55 billion to a record $63.23 billion in August.
  • Australia exported $14.45 billion of goods to the US in the year to August, down slightly from a record $14.46 billion in the year to July. Imports from the US totalled a record $33 billion in the year to August.

 

What is the importance of the economic data?

  • The Federal Chamber of Automotive Industries releases estimates of new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
  • The Australian Industry Group (AiG) release surveys on the services sector each month. The Australian surveys are the local equivalents of similar surveys released for other countries. The services sector surveys are useful, not just in showing how the sector is performing, but in providing some sense about where it is headed. The key ‘forward looking’ components are orders and employment.
  • The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

 

What are the implications for interest rates and investors

  • The Reserve Bank remains prepared to cut rates again if necessary. But it will first need to see if the three quick- fire rate cuts are working. Early evidence is positive. The services sector is expanding, home prices are rising and consumer confidence is up. But it is still early days.
  • Australia’s export-oriented sectors are ‘weathering the storm’, despite being caught between our largest trading partner and most important defence ally. But deteriorating global growth presents a downside risk to our external sector.
  • Australia, in particular, remains highly exposed to a downturn in the Chinese economy. China takes a record 37 per cent of our exports. And imports from China are also near record highs – accounting for more than a quarter of all our imports. At some point Australia’s share of exports and imports with China will peak.
  • The instability in Hong Kong is taking a toll on Australia-Hong Kong trade. Exports to Hong Kong are falling at a near 40 per cent annual rate with imports from Hong Kong falling at a slightly higher annual rate. Some trade flows may have shifted to the mainland in recent months, boosting Australia-China trade.
  • Australia is exporting its socks off. And it is not just Western Australia and the Northern Territory. Exports from Queensland and Victoria were at record levels in the past year. More revenue equals bigger returns for shareholders and employees, potentially boosting spending and jobs across the economy.
  • In the space of a year, Australia has generated almost $60 billion of extra income, translating to almost $2,300 for every Aussie.
  • Expert economists expect a rate cut in February 2020.

 

 

October lives up to its reputation

Financial markets

  • Global sell-off: Sharemarkets across the globe are down 2-3%, responding to a raft of worries.

 

Sharemarket movements can impact consumer sentiment and wealth and therefore affect spending.

 

What has happened and what does it mean?

  • October has a bad reputation with sharemarket investors. There was the October 1987 sharemarket crash when 42 per cent was wiped off the Australian market in the space of a month. Then October 1997 and October 2008, both with double-digit declines. Last year, shares fell 6.5 per cent in October. And this year October hasn’t started well for sharemarket investors.
  • As for this month – October 2019 – there are a litany of worries weighing on investor minds. There is the US- China trade war. A new US-Europe trade war is possible. Brexit hasn’t been resolved in the UK. The global economy continues to soften and central banks haven’t been left with much ammunition to address the slowdown. And then there is the Impeachment Inquiry against President Trump.
  • So in response, investors are taking money off the table. European markets fell by around 3 per cent on Wednesday. US markets fell by around 2 per cent. Today Asian markets are down around 2 per cent, including similar falls on the Australian market.
  • But the falls need to be put in context, it is important to remember that on Tuesday the Australian sharemarket was around 1 per cent below record levels. Similarly in the US, with the S&P 500 index flirting with new highs over the past week. The market has come a long way without a correction. And the shift in the news balance from positive to negative is prompting investors to book profits.
  • And while major sell-offs have happened in the month of October, the month has a bad rap. In essence the month should be better known for volatility rather than negativity. Over the past decade, the All Ordinaries has only fallen three times during the month of October. In fact, on average, shares have lifted 1.8 per cent in the month. Going back further over the past 20 Octobers, shares have risen on average by 1.1 per cent. And while the sharemarket has recorded big declines in October, there have been lofty gains like 1974 (+17.2 per cent) and October 1986 (+10.5 per cent)

 

What are the implications for investors?

  • On Tuesday the Australian sharemarket was up 20 per cent for 2019 (January-September) and was on track for the best year in a decade. Similarly in the US the broader S&P 500 index was up over 17 per cent. NZ sharemarkets were actually up 25 per cent for the year, while the German market was up 16 per cent.
  • All it would take were some positive comments by the US President on trade to prompt sharemarkets to rally again. Or a strong lift in US employment when the figures are released on Friday. In other words, the news flow could shift again to the more positive end of the scale. But after the US decided to slap higher tariffs on European goods, it is certainly getting harder to get more balance in the news flow.
  • Still, if the global economy continues to soften and sharemarket weakens further, central banks will respond by cutting rates. Importantly the US Federal Reserve has substantial scope to trim rates with the federal funds rate now in a 1.75-2.00 per cent range.
  • In Australia, our Reserve Bank can trim rates a little further. But there is also more scope for fiscal stimulus given that the budget is balanced. Australia also can claim a record trade surplus, low inflation, relatively low jobless rate, an export-friendly Aussie dollar, substantial infrastructure spending and a recovering property market.

 

Investor Signposts: Week Beginning October 6 2019

Australia: Consumer and business surveys in focus

  • In a holiday-shortened week for most of Australia, investor attention will focus on consumer and business confidence surveys. Financial markets are still open on Monday despite holidays in a number of states.
  • The week kicks-off on Monday when AiGroup provides an update on construction activity.
  • On Tuesday, weekly consumer sentiment data is issued by ANZ and Roy Morgan. Tax relief, the revival in property prices and positive superannuation returns are likely to support consumer spending. But tepid wages growth, elevated mortgage debt and rising unemployment are keeping consumer cautious.
  • Also on Tuesday, NAB provides an update on Aussie business confidence and conditions while ANZ issues its job advertisements series. Momentum in the business sector continues to weaken. Sluggish domestic demand, global trade uncertainty, rising input costs and subdued selling prices are weighing on business profitability and expansion plans. Job ads are important given the labour market focus of the RBA.
  • On Wednesday, monthly consumer confidence data is scheduled from Westpac and the Melbourne Institute. Sentiment has been choppy, down by 1.7 per cent in September after a 3.6 per cent increase in August. Consumer views on unemployment and property expectations will be closely monitored.
  • Also on Wednesday, the Bureau of Statistics (ABS) issues building data for the June quarter. The slowdown in home building continues. And the amount of work entering the pipeline is declining, having peaked a year ago. The number of homes currently being built across Australia is the lowest level since December 2015.
  • On Thursday, lending finance data is released by the ABS for August. Housing finance approvals rebounded in July as lending conditions continued to improve. The total value of owner-occupier and investor loans rose by 5.1 per cent and another 4 per cent lift is expected in August. The size of home loans is lifting – presenting some challenges for Reserve Bank policymakers in the medium term with still-elevated household mortgage debt.

 

Overseas: US Federal Reserve and inflation data take centre stage

  • China returns from its National Day Golden week holiday period, but little data is scheduled. In the US, Federal Reserve Chair Jerome Powell speaks and the minutes of the Federal Open Market Committee (FOMC) September meeting are issued. And proposed US-China trade talks will be closely watched.
  • The week begins on Monday in China when Caixin releases its private sector services activity gauge. Credit growth and money supply data are also scheduled for release during the week.
  • On Monday in the US, consumer credit data is due. Total credit rose by US$23.3 billion in July, but most attention in the month was focused on the jump in credit card balances – which rose the most since 2017.
  • On Tuesday, the regular weekly reading on US chain store sales is due together with producer prices data for September and the release of the NFIB small business activity gauge. Despite US-China trade uncertainty the NFIB index remains at elevated levels with activity still robust.
  • Also on Tuesday, US Federal Reserve Chair Jerome Powell is scheduled to speak at the annual meeting of the National Association for Business Economists in Denver.
  • On Wednesday, the weekly reading on mortgage applications is issued as well as job openings and inventories data. The Job Openings and Labor Turnover (JOLTS) survey in July pointed to a loss of momentum in the US jobs market. Job vacancies eased to 5-month lows with the number of positions waiting to be filled falling by 31,000 to 7.22 million. The quits rate rose to 2.4 per cent – the highest since April 2001 – suggesting that workers still remain confident about finding work with prospective employers.
  • Also on Wednesday, the FOMC releases the minutes of its September 18 meeting where the federal funds rate was cut by 25 basis points to a target of 1.75 to 2.00 per cent. The FOMC cited “the implications of global developments for the economic outlook as well as muted inflation pressures” as the primary reason for the cut. Economists still expect the FOMC to cut interest rates again in December.
  • Over Thursday and Friday high-level trade talks are due to be held between the US and China. The outlook for the global economy is dependent on a deal being secured.
  • On Thursday, attention shifts to the release of consumer price data for August. The annual growth rate of US core inflation rose to 2.4 per cent in August. Tariffs drove goods prices higher, while medical care, shelter, apparel and used car prices all rose.
  • Also on Thursday, the usual weekly data on claims for unemployment insurance (jobless claims) is released, together with an update on the US budget deficit.
  • On Friday, trade prices data is issued, completing the trifecta of inflation releases for September. The preliminary October update on consumer confidence from the University of Michigan is the other highlight to conclude the week.

 

Stay updated with the latest market and currency developments here.

 

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