Weekly Market & Currency Developments – From Our Bankers

Market and Currency Developments from November 3rd

 

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

Record Aussie life expectancy; Record Chinese wine exports; Bankruptcies hit 241⁄2-year low

Life expectancy; Personal insolvencies; Wine exports

  • Life expectancy: Life expectancy at birth stands at 82.8 years for all Aussies in 2018 – amongst the highest in the world. Life expectancy for both females (84.9 years, up by 0.3 years from 2017) and males (80.7 years, up by 0.2 years from 2017) rose to record highs.
  • Life expectancy by region: In 2018, the region with the highest life expectancy is Sydney – North Sydney and Hornsby at 86.7 years. The lowest life expectancy is in the Northern Territory – Outback at 74.5 years. Sydney – City and Inner South experienced the biggest increase in life expectancy of 1.9 years over the last five years.
  • Falling bankruptcies: Over the year to September, bankruptcies fell by 6.4 per cent to a 241⁄2-year low of 3,692. New bankruptcies fell by 11.2 per cent to a 29-year low of 600 in Victoria. And bankruptcies were down by 9.6 per cent to a 15-year low of 1,065 in Queensland. Around 25 per cent of bankruptcies were business related.
  • Wine exports: The value of Australian wine exports rose by 7 per cent to $2.89 billion over the year to September. But wine export volumes declined by 8 per cent to 774 million litres. The value of wine exports to China lifted by 18 per cent to a record high $1.25 billion.

 

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.

 

What does it all mean?

  • Aussies are living longer. In fact, life expectancy from birth for all Australians is at all-time highs at 82.8 years in 2018. Over the past decade, female life expectancy has increased by 1.2 years to 84.9 years. And male life expectancy has lifted by 1.5 years to an all-time high of 80.7 years.
  • In 2017/18, the biggest increase in life expectancy occurred for females in the Northern Territory (up by 0.8 years to 80.2 years) and males in Tasmania (up 0.6 years to 79.3 years).
  • Across Aussie regions, the highest life expectancy is 86.7 years in Sydney’s leafy North Shore (North Sydney and Hornsby). Sydney, Melbourne and Brisbane’s affluent suburbs generally dominate the regions with the highest life expectancies. But Australia’s outback – especially the Northern Territory (74.5 years), Queensland (78.7 years) and Western Australia – North (78.9 years) – dominate the lowest life expectancies.
  • Some Aussies are struggling at the moment with financial pressures, but new personal bankruptcies are at the lowest level since March 1995. Insolvencies have been falling over the past decade. In fact, bankruptcies in Victoria are at 29-year lows and insolvencies have hit 15-year lows in Queensland.

 

What do the figures show?

Life expectancy: 2016-18

  • According to the Bureau of Statistics: “Life expectancy in Australia has reached record highs with a boy born today expected to live to 80.7 years and a girl to 84.9 years.”
  • “Male life expectancy has increased by 0.2 years over the 2015-2017 to 2016-2018 period, and by 1.5 years in the past ten years. Female life expectancy has increased by 0.3 years during the same period, and by 1.2 years in the past decade.”
  • “Life expectancy for males has improved at a faster rate than that for females. Around 50 years ago (1965-67), life expectancy at birth in Australia was 67.6 years for males and 74.2 years for females, a gap of 6.6 years. The gap has now narrowed to 4.2 years in 2016/2018.”
  • By state: Victoria recorded the highest male life expectancy (81.7 years), followed by the Australian Capital Territory (81.2 years), New South Wales (80.6 years), Western Australia (80.5 years), South Australia (80.4 years), Queensland (80.2 years) and Tasmania (79.3 years).
  • Highest life expectancy by gender, state and region: “Both Victoria and the Australian Capital Territory recorded the highest female life expectancies (85.3 years), closely followed by Western Australia (85.1 years), then New South Wales (84.9 years), Queensland and South Australia (both 84.7 years) and Tasmania (83.2 years).”
  • Lowest life expectancy by gender, state and region: “The Northern Territory recorded the lowest life expectancy for both males and females (75.5 years and 80.2 years, respectively). Despite this, male and female life expectancies in the Northern Territory showed the greatest gains of all the states and territories, over the last decade (2.9 years and 1.8 years).”

 

Personal insolvency statistics: September quarter

  • According to Australian Financial Security Authority (AFSA), over the year to September, new bankruptcies fell by 6.4 per cent to a 241⁄2-year low of 3,692.
  • By state: New bankruptcies fell in Victoria (down 11.2 per cent to 600); Queensland (down 9.6 per cent to 1,065); Western Australia (down 3.5 per cent to 522); New South Wales (down 1.4 per cent to 1,064) and South Australia (down 0.8 per cent to 243). But bankruptcies increased in the Northern Territory (up 29.6 per cent to 35); Tasmania (up by 24.1 per cent to 98) and the ACT (up 2.7 per cent to 38).
  • In the September quarter, 24.8 per cent of bankrupts entered a business-related bankruptcy.

 

Wine exports: September quarter

  • According to Wine Australia, the value of Australian wine exports rose by 7 per cent to $2.89 billion over the year to September. The period saw the average value of bottled exports reach a record high of $6.79 per litre.
  • The value of wine exports to China lifted by 18 per cent to a record high $1.25 billion over the year to September. The value of wine exports to the US rose by 3 per cent to $436 million, but fell for the UK (down 4 per cent to $365 million) and Canada (down 6 per cent to $188 million).
  • Wine export volumes declined by 8 per cent to 774 million litres over the year to September. Export volumes to the UK (down by 2 per cent to 233 million litres) and the US (down 9 per cent to 146 million litres) both fell. 

 

What is the importance of the economic data?

  • A breakdown of business and non-business personal insolvency statistics is published quarterly for bankrupts, debt agreement debtors and personal insolvency agreement debtors by the Australian Financial Security Authority (AFSA). AFSA reports the business and non-business personal insolvency statistics based on the number of debtors, not the number of administrations. We treat insolvency proceedings involving two or more partners as one administration. The business and non-business statistics will generally be higher than statistics based on administrations, the quarterly personal insolvency statistics.
  • The Australian Bureau of Statistics (ABS) provides life tables to measure mortality. The life table depicts the mortality experience of a hypothetical group of newborn babies throughout their entire lifetime. It is based on the assumption that this group is subject to the age-specific mortality rates of the reference period. Typically this hypothetical group is 100,000 persons in size.

 

What are the implications for interest rates and investors?

  • According to United Nations estimates, Aussies currently enjoy the sixth longest life expectancy worldwide. Medical and technological advances, less manual work and greater general health awareness are likely behind the continued improvement in male and female longevity from birth.
  • Increasing life expectancy has implications for government spending on health and infrastructure, given Australia’s aging population and increasingly under-pressure working-age population. The health care sector is already Australia’s largest employer.
  • Australia’s external-facing export sectors continue to perform well in the face of the US-China trade dispute and slowing global economy. China’s growing and wealthier middle class are demanding higher quality and more expensive ‘plonk’ from wine producers in Australia. The average value of each litre of wine lifted by 40 per cent to $8.42 in the year to September, according to Wine Australia. Great news for Australia’s wine regions.
  • Economists expect another interest rate cut in February 2020.

 

Inflation rate creeps towards RBA target zone

Consumer price index

  • Inflation: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.5 per cent in the September quarter, in line with expectations. In seasonally adjusted terms the CPI rose by 0.3 per cent. The annual rate of headline inflation lifted from 1.6 per cent to 1.7 per cent. The Aussie dollar was unchanged against the greenback in response.
  • Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the September quarter (1.6 per cent annual); the weighted median rose by 0.3 per cent (1.2 per cent annual) and the CPI less volatile items rose by 0.8 per cent (1.9 per cent annual). Overall, underlying inflation rose by around 0.5 per cent in the quarter and by around 1.5 per cent over the year. Market goods and services less volatile items rose by 0.8 per cent in the quarter (biggest rise in almost 4 years) to be up 1.8 per cent on the year.
  • Main changes: International holiday travel (+6.1 per cent), tobacco (+3.4 per cent), property rates & charges (+2.5 per cent) and child care (+2.5 per cent) recorded the most significant price gains. The most significant offsetting price falls this quarter are automotive fuel (-2.0 per cent), fruit (-3.1 per cent), and vegetables (-2.5 per cent).
  • Notable lows: Audio-visual equipment (39-year lows). Games, toys and hobby prices (record 21-year lows). Deposit and loan facilities (record 8-year lows). Record (20-year) annual fall in cost of new dwelling purchase (-0.1 per cent) with rents up just 0.4 per cent. Electricity prices fell 2.1 per cent on the year (biggest fall in 31⁄2 years).
  • Notable price increases: Bread and cereal prices (+3.6 per cent) are growing at the fastest annual rate in a decade with cereal prices up 6.4 per cent. Drought effects are also apparent in beef & veal (+7.1 per cent), chicken (+5.2 per cent), lamb (+14.3 per cent). Milk prices are up 6.7 per cent over the year, the fastest rate in 11 years.

 

What does it all mean?

  • Inflation remains contained. The headline annual inflation rate has bottomed, but it is creeping, rather than leaping, towards the Reserve Bank’s 2-3 per cent target band. That is more than we can say about ‘underlying inflation’ which solidly remains near 1.5 per cent.
  • Headline inflation may be boosted by the drought effects on food prices in coming quarters. Higher home prices may serve to lift some price measures in the ‘Housing’ grouping. Wage growth may remain low but it is still outpacing prices. And with productivity growth near zero, the positive real wage growth may be applying some upward pressure on prices – especially in the services sector.
  • The Reserve Bank has indicated that rate cuts are still possible. But the language from the policymakers suggest that they are very reluctant rate cutters from here. Rates are low enough and the rate cuts have actually been having the opposite to the desired affect – spooking Aussie consumers. And there is evidence to support the ‘gentle turning point’ view of the Reserve Bank. Unemployment fell last month and home prices are again barrelling higher in Sydney and Melbourne.
  • The Reserve Bank is expected to wait until at least February 2020 to decide if more interest rate stimulus is required. 

 

What do the figures show?

  • The Consumer Price Index – the main measure of inflation in Australia – rose by 0.5 per cent in the September quarter, in line with expectations. In seasonally adjusted terms the CPI rose by 0.3 per cent. The annual rate of headline inflation lifted from 1.6 per cent to 1.7 per cent.
  • The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the September quarter (1.6 per cent annual); the weighted median rose by 0.3 per cent (1.2 per cent annual) and the CPI less volatile items rose by 0.8 per cent (1.9 per cent annual). Overall, underlying inflation rose by around 0.5 per cent in the quarter and by around 1.5 per cent over the year. Market goods and services less volatile items rose by 0.8 per cent in the quarter (biggest rise in almost 4 years) to be up 1.8 per cent on the year.
  • Capital cities: Sydney +0.5 per cent in the quarter (annual +1.6 per cent); Melbourne +0.5 per cent (+1.7 per cent); Brisbane +0.6 per cent (+1.9 per cent); Adelaide +0.7 per cent (+1.9 per cent); Perth +0.5 per cent (+1.6 per cent); Hobart +0.5 per cent (+2.2 per cent); Darwin +0.3 per cent (+0.5 per cent); Canberra +0.7 per cent (+1.8 per cent).
  • Main Positive Contributors:
    • Recreation and culture (+1.5 per cent) due to the peak tourist season in Europe and America which drove international holiday, travel and accommodation (+6.1 per cent).
    • Alcohol and tobacco (+2.0 per cent) driven by tobacco (+3.4 per cent) due to the annual increase in the tobacco excise (12.5 per cent, applied on 1 September.). Wine rose 2.6 per cent in Sydney and 3.5 per cent in Adelaide.
    • Domestic holiday, travel and accommodation rose 3.2 per cent in Canberra and rose 4.4 per cent in Darwin
    • In Brisbane electricity rose 2.6 per cent, driven by the $50 asset ownership dividend that was applied to consumers’ electricity bills last quarter.
  • Main Negative Contributors:
    • Communication (-1.1 per cent) driven by telecommunication equipment and services (-1.1 per cent) due to increased use of mobile services.
    • Transport (-0.3 per cent) due to a fall in automotive fuel (-2.0 per cent) as recent falls in world oil prices flow through to consumers.
    • In NSW: Sports participation (-3.5 per cent) due to the introduction of a second $100 Active Kids sports voucher for school aged children in New South Wales.
    • In Melbourne: Electricity (-4.1 per cent) due to the introduction of the Victorian Default Offer from 1 July 2019.
    • In Adelaide: Insurance (-3.5 per cent) due to the Compulsory Third Party insurance market being opened to competition on 1 July.
  • Prices of tradables: The tradables component of the All groups CPI rose by 0.9 per cent in the September quarter to be up 1.2 per cent over the year. Tradable goods component rose 0.3 per cent due to wine (+1.8 per cent), gas and other household fuels (+3.0 per cent), furniture (+2.4 per cent) and garments for women (+1.4 per cent). Tradable services component rose 5.8 per cent due to international holiday, travel and accommodation (+6.1 per cent).
  • Prices of non-tradables: The non-tradables component of the All groups CPI rose 0.4 per cent in the September quarter to be up 1.9 per cent over the year. Non-tradable goods component rose 0.6 per cent due to tobacco (+3.4 per cent). Non-tradable services component rose 0.3 per cent due to property rates and charges (+2.5 per cent).
  • In seasonally adjusted terms, the tradables component of the All groups CPI rose 0.3 per cent and the non-tradables component rose 0.5 per cent.
  • Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.

 

Why is the data important?

  • The Consumer Price Index (CPI) is regarded as Australia’s premier measure of inflation. The CPI is published quarterly and measures price changes for a ‘basket’ of goods and services that dominate expenditure of metropolitan households. The “All Groups” index is the main focus, but other inflation measures are also published such as so-called ‘underlying’ measures. These include measures that abstract from price changes in volatile price items such as fresh food and petrol.
  • The Reserve Bank aims to keep the headline inflation rate between 2-3 per cent over an economic cycle. If inflation is high and expected to rise, the Reserve Bank may elect to raise interest rates in order to constrain price pressures. Conversely, if inflation is low and expected to remain low, the Reserve Bank may elect to cut interest rates if it believes the growth pace of the economy is in need of strengthening.

 

What are the implications?

  • There were no real surprises in the latest inflation data. Headline inflation remains stubbornly below the 2-3 per cent target band.
  • The east coast drought is driving food prices higher, especially cereals and meat. But tech goods continue to get cheaper including games, toys and hobbies. Housing costs remain low as do financial services. The cost of pets continues to lift – up 6.9 per cent over the year, the fastest growth in eight years. The low Aussie dollar has driven up international travel by 5.8 per cent on the year – fastest gain in five years. Petrol is 3.9 per cent cheaper than a year ago. Even electricity prices are falling.
  • The Reserve Bank Board meets on Tuesday and is expected to leave rates unchanged. The quarterly Statement on Monetary Policy is released on November 8.

 

US interest rates: Fed cuts, but signals pause

US Federal Reserve meeting

  • US Federal Reserve decision: As expected, the US Federal Reserve’s Open Market Committee (“FOMC”) reduced the target range for the federal funds rate by 25 basis points (quarter of a per cent) to between 1.50-1.75 per cent – the third successive rate cut. The FOMC again cited “the implications of global developments for the economic outlook as well as muted inflation pressures” as the primary reason for the cut. FOMC members voted 8-2 to cut interest rates.
  • US interest rate outlook: In its statement, the FOMC dropped its vow to “act as appropriate to sustain the expansion”, but still remains data-dependent as it “assesses the appropriate path of the target range for the federal funds rate.” In his press conference, US Federal Reserve Chair Jerome Powell hinted at a pause as “we see the current stance of policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”

 

Changes in US monetary policy settings can affect rates in Australia as well as the sharemarket and currency.

 

What did the US Federal Reserve decide and what does it all mean?

  • The US economy remains resilient, but the US central bank continues to take out insurance to shield consumers from the slowdown in business investment. In the continuing “tug-of-war” between solid consumer spending and weakening business investment, consumers again dominated the overnight release of economic growth (GDP) in the September quarter.
  • In fact, US consumer spending rose by an annual growth rate of 2.9 per cent in the September quarter, in-line with its average pace over the first half of the year. Real GDP growth slipped to 1.9 per cent over the year, around its long-run average and ahead of market expectations for 1.6 per cent. Business investment, however, fell by 3.0 per cent over the year – recording the first back-to-back declines since March 2016.
  • For now, the US Federal Reserve appears content to pause after three successive rate cuts. In his press conference, FOMC Chair Powell said “we believe monetary policy is in a good place” and noted that geo-political risks around trade and the Brexit were easing.

 

What are the implications of today’s decision?

  • While the bar appears to have been lifted for a fourth consecutive US rate cut on December 11, developments in the job market and consumer-related data remain key to the interest rate outlook. A slowing in labour hiring (the unemployment rate is at 50-year lows of 3.5 per cent), the housing market, consumer sentiment indicators and/or further weakness in retail spending data could sway FOMC thinking. Policymakers would have already noted some consumer caution with reduced spending on motor vehicles, less appetite for large household durable goods, while delinquency rates on personal loans have been lifting.
  • And of course the FOMC has been thrown a “curve ball” on the trade front with Chile cancelling next month’s APEC Summit in Santiago due to protests. That said, the Trump Administration appears keen to press ahead with the “phase one” partial trade deal with China in the coming weeks. Trade uncertainty has been a major contributor to decelerating global trade volumes, reduced business spending on capital and equipment and slowing global growth.
  • US Treasuries weakened immediately after FOMC announcement with the US 10-year yield up slightly to 1.81 per cent. But Treasuries were firmer (yields lower) overall during the US trading session with US 2-year yields down by 4 points to near 1.61 per cent and US 10-year yields lower by 6 points to near 1.78 per cent.
  • In US sharemarkets overnight, the Dow Jones index rose by 115 points or 0.4 per cent; the S&P500 index rose by 0.3 per cent to record highs; and the Nasdaq index rose by 27 points or 0.3 per cent.
  • The Aussie dollar moved between US68.50 cents and US69.00 cents and was around highs in late US trade. Commonwealth Bank Group economists still expect the FOMC to cut interest rates in December.

 

Income lifts; Building rebounds; Credit stays weak

Export & import prices; Building approvals; Credit

  • Export & import prices: Import prices rose by 0.4 per cent in the September quarter and were up 1.2 per cent on a year ago. Export prices rose by 1.3 per cent in the quarter to be up 14.7 per cent on the year.
  • Lending: Private sector credit (effectively outstanding loans) rose by 0.2 per cent in September after lifting 0.2 per cent in August. Annual credit growth fell from 2.9 per cent to an 8-year low of 2.7 per cent. APRA data shows that loans via credit cards hit a 91⁄2-year low in September.
  • Building approvals: Council approvals to build new homes lifted 7.6 per cent from 61⁄2-year lows in September. The value of home and commercial building totalled $114.5 billion in the year to September, 15 per cent above decade averages.
  • China data: The manufacturing purchasing managers index (PMI) fell from 49.8 to 49.3 in October (forecast 49.8). The services PMI fell from 53.7 to 52.8 (forecast 53.9). Any reading above 50 signifies expansion.

 

The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses. Credit card data is important for the retail and financial sectors. The approvals data has implications for banks, retailers, developers, building and building material companies.

 

What does it all mean?

  • Aussie continue to get richer. The prices we are getting for our exports are outpacing the prices we pay for our imported goods, putting the ‘terms of trade’ at 6-year highs. Both prices and volumes are rising, boosting the economy’s wealth.
  • Home building has softened in a trend sense but commercial building is still lifting. The near $115 billion of building approvals is around 15 per cent above long-term averages.
  • The Aussie housing market revival – centred on Sydney and Melbourne – may have seen a recent upswing in new home lending activity, but housing credit growth is still benign. Lending conditions have broadly eased, but slow adjustment to repayments appear to be capping credit growth. Annual investor credit growth has turned negative for the first time on record.
  • Perhaps more troubling for Reserve Bank policymakers is the ongoing weakness in business credit growth. While there was a solid pick-up in September, the annual growth rate has decelerated to a 15-month low. Small businesses, in particular, are still contending with challenging business conditions (and greater compliance) amid the economic slowdown. And the Reserve Bank has already highlighted reports of difficulty in SMEs obtaining business loans. It is hoped that lower borrowing costs and signs of a stabilisation in the economy will encourage Corporate Australia to once again increase investment in capital and equipment.
  • The pace of annual personal credit growth has hit decade lows, but it’s difficult to determine whether Aussies are being more disciplined with debt or it’s due to structural changes around increasing debit card use and millennials’ focus on ‘buy now, pay later’ payment methods.

 

What do the figures show?

Export & import prices

  • The Bureau of Statistics (ABS) reported that import prices rose by 0.4 per cent in the September quarter to be up 1.2 per cent over the year.
  • Import prices were driven by: gold, general industrial machinery and telecom equipment. There were offsetting falls in import prices from petroleum, and organic chemicals.
  • Six of the ten broad import categories recorded price increases in the September quarter.
  • Export prices rose by 1.3 per cent in the September quarter to be up 14.7 per cent over the year. Overall, export prices were driven by higher prices for iron ore, gold, base metals, metal scrap and meat. There were offsetting falls in prices by coal, cereals, textiles and petroleum.
  • Eight of the ten broad export categories recorded price increases in the September quarter.
  • The ratio of export prices to import prices (a proxy for the terms of trade) rose by 1.0 per cent in the September quarter to fresh 6-year highs.

 

 

Private sector credit & APRA data (September)

  • Private sector credit (effectively outstanding loans) rose by 0.2 per cent in September after also lifting 0.2 per cent growth in August. Annual credit growth fell from 2.9 per cent to an 8-year low of 2.7 per cent.
  • Housing credit grew by 0.2 per cent in September. And the annual growth rate fell from 3.2 per cent to 3.1 per cent – the slowest growth rate on record.
  • Owner occupier housing credit rose by 0.4 per cent in September to stand 4.8 per cent higher over the year – equalling the weakest annual growth rate in the past 51⁄2 years.
  • Investor housing finance fell by 0.1 per cent in September with the annual decline the biggest on record at -0.1 per cent.
  • Personal credit fell by 0.7 per cent in September – the equal biggest decline in 101⁄2 years. Lending fell by 4.4 per cent over the year – the biggest annual decline in a decade.
  • Business credit rose by 0.4 per cent in September. But the annual growth rate fell from 3.5 per cent to a 15-month low of 3.3 per cent.
  • The M3 money aggregate rose by 0.3 per cent in September and Broad Money also lifted by 0.3 per cent. Annual growth of the M3 money aggregate rose from 3.5 per cent to 3.8 per cent with the Broad Money annual growth rate up from 3.6 per cent to 3.9 per cent.
  • Loans and advances by banks grew by 3.6 per cent in the year to September, down from 3.9 per cent in the year to August. 

 

Building Approvals – September

  • Council approvals to build new homes rose for the first time in four months in September. Approvals rose by 7.6 per cent – the biggest rise in in seven months – and lifted from 61⁄2-year lows.
  • House approvals rose by 2.6 per cent and apartment approvals rose by 16.1 per cent.
  • In trend terms, overall approvals fell by 0.8 per cent, the 22nd straight fall.
  • Over the past year 176,236 new homes were approved (decade average 195,736) – the lowest number of new approvals in six years.
  • Dwelling approvals across states/territories: NSW (down 2.5 per cent); Victoria (up 3.3 per cent); Queensland (up 19.6 per cent); South Australia (up 16.0 per cent); Western Australia (down 24.5 per cent); Tasmania (up 3.4 per cent). Trend terms: Northern Territory (down 9.3 per cent); ACT (down 1.8 per cent).
  • The value of all commercial and residential building approvals eased by 16.6 per cent after soaring by 25 per cent in August. Residential approvals rose by 8.0 per cent with new building up by 8.8 per cent and alterations & additions higher by 2.8 per cent. But commercial building fell by 36.6 per cent after soaring by 58.8 per cent in August.
  • Over the year to September, building approvals totalled $114.5 billion, 15.4 per cent above the decade average.

 

What is the importance of the economic data?

  • The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist in gauging inflationary pressures in the economy.
  • Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
  • The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

 

What are the implications for interest rates and investors?

  • The Reserve Bank is in the process of assessing information. No rate changes are expected until the New Year at the earliest.
  • The weak Chinese purchasing manager survey results may put new pressure on Chinese and US trade negotiators to come up with a deal.
  • Commercial building activity is buoyant and serving to offset softness in home building. Together with a bevy of infrastructure projects, there is no shortage of building/construction work. But builders and building material firms may need to travel to embrace the opportunities.

 

Investor Signposts: Week Beginning November 3 2019

Australia: Reserve Bank meets on Melbourne Cup Day

  • In Australia, the Reserve Bank Board meets on Tuesday. Then, on Friday the Bank provides a quarterly update on its economic growth and inflation forecasts. Top-shelf data releases include retail trade, international trade, lending and new vehicle sales.
  • The week kicks-off on Monday with updates on retail trade, consumer prices and job advertisements. The retail spending data will garner most investor attention with the release of September quarter figures. Spending at shops and online is expected to have lifted by around 0.3 per cent during the quarter. Sales were up by 0.4 per cent in August – the strongest gain in six months – supported by the receipt of tax refunds.
  • On Tuesday, the Reserve Bank Board meets and hands down its interest rate decision at 2.30pm AEDT – prior to ‘the race that stops a nation’. Economists expect no change in interest rates, but is pencilling in an additional rate cut for February 4 2020.
  • Also on Tuesday, the regular weekly measure of consumer confidence is issued by ANZ and Roy Morgan. AiGroup and CommBank/IHS Markit also release their services sector indexes. And the Federal Chamber of Automotive Industries provides VFACTS data on new vehicle sales for October.
  • 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.
  • On Thursday, there are two indicators to spark investor interest: international trade (exports and imports) and AiGroup’s Performance of Construction Index (October). Australia is expected to record a 21st successive monthly trade surplus in September. The rolling annual surplus was a record $58.59 billion in the year to August. Exports to China have hit new highs, with still-solid demand for iron ore, coal and LNG, despite the ongoing US-China trade dispute. The drought has weighed on farm exports.
  • On Friday, the Reserve Bank provides a quarterly update of its economic growth (GDP), inflation, unemployment and wage growth forecasts. The Statement of Monetary Policy also details the Bank’s assessment of current economic conditions with some topics of special interest highlighted.
  • Also on Friday the ABS issues new lending data. Mortgage rate cuts and rising home prices boosted investment lending by 5.7 per cent in August and 4.2 per cent in July – the largest increases in since September 2016.

 

Overseas: US and China trade data in focus

  • A bevy of US economic data releases lie ahead in the coming week including trade, job openings and a gauge of services sector activity. In China, data on trade and inflation are of most interest.
  • In the US on Monday, factory orders data is released for September. Orders are expected to have fallen by 0.5 per cent. Construction-related orders were particularly weak, down by 26.9 per cent over the year to August.
  • On Tuesday in China, the private-sector focused Caixin services gauge is due for October.
  • In the US on Tuesday, international trade data is expected together with the number of job openings; the Institute of Supply Management’s (ISM) non-manufacturing index; and weekly chain store sales figures.
  • US imports and exports with China have declined significantly since the trade war began 18 months ago, disrupting supply chains, increasing input costs and delaying business spending on machinery and equipment. China has been relegated to the third largest trading partner of the US so far in 2019, behind Mexico and Canada. The overall US trade deficit is expected to fall by US$0.9 billion to US$54 billion in September.
  • On Wednesday, the weekly reading on mortgage applications is issued along with September quarter updates on productivity and unit labour costs. US 30-year fixed mortgage rates are near the lowest levels since late 2016 at 4 per cent, but a lack of US housing supply is preventing buyer purchase activity from lifting more meaningfully.
  • On Thursday, the usual weekly data on claims for unemployment insurance (jobless claims) are released, together with consumer credit data. US consumer credit rose by US$17.9 billion in August with non-revolving debt up by US$19.8 billion – the most in three years. Education loans surged ahead of the New Year at US universities.
  • On Friday in the US, the preliminary update on consumer confidence for November is provided by the University of Michigan. Sentiment remains elevated, but eased in October on increased concerns about the economic outlook.
  • On Friday in China, trade data is due. Chinese imports fell by 8.5 per cent over the year to September, weighed down by sagging domestic demand and the ongoing US trade war.
  • On Saturday, Chinese inflation data is due along with new vehicle sales figures for October. Pork prices have surged by 69.3 per cent over the year to September – due to a swine flu epidemic – and serving to lift headline consumer prices. But deflation is deepening in the industrial sector with producer prices down by 1.2 per cent from a year ago. And new vehicle sales are expected to have fallen for a 16th consecutive month in October.

 

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.



Archives

Freightplus. Worldwide.

LOOKING TO MOVE MINING & CONSTRUCTION MACHINERY?
DD
Translate »