– MARCH 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold yet again in March but surprised with a change in language around the outlook for growth.
- While long term rates were on the move last month, it is now short term rates on the move and it has many scratching their heads as to why.
- The FOMC is widely expected to raise the Fed Funds Rate next week which will lift it above the RBA Cash Rate.
- Clouds are brewing on the horizon if the RBA’s subtle shift in language in their March Statement is anything to go by and it could squeeze them between a rock and a hard place.
Australian Economic Highlights
- Growth for Q4 came in at 0.4%, short of both the market and RBA’s expectations. The economy grew just 0.4% in Q4 which saw the annual rate slow to 2.4% from an upwardly revised 2.9% last quarter. The most recent RBA statement reflected a less optimistic view on growth for the rest of 2018.
- CPI continued to disappoint, the headline figure only lifting 0.6% for the second straight quarter in Q4. The RBA’s preferred measure, core inflation also remained below the band at 1.9% after a quarterly increase of only 0.4%.
- Employment data continues to be a pillar of strength in the Australian economy with another 16,000 jobs added in January. It is still evident that a degree of slack still remains despite the lift in jobs, as the unemployment rate decreased to 5.5% that looks to be attributed to the drop in the participation rate.
- Following the strong result last month, ANZ job ads turned negative with a decline of 0.3%.
- The NAB business conditions continues to perform strongly with the index jumping to 21 in February, a new record. The Business confidence on the other hand declined to 9, this could be attributed to heightened volatility in financial markets.
- After improving the prior two months, Consumer confidence pulled back in February as was expected following the pick up in volatility in global markets. Despite the 2.3% fall, the index remains above the key 100 level.
- Following on from the soft December result, Retail sales posted a small gain of 0.1% for January, falling short of expectations. Consumer spending continues to be a weak point in the economy as retail turnover lifted only 0.3%, compared to 2.3% in January last year.
- Housing finance looks to be stabilising as the value of approvals to both owner occupiers and investors were up in January.
- Australia’s trade balance rebounded after the previous deficit to record a surplus of $1.055bn in Q4. Non-monetary gold was one of the larger contributors, up 54% whilst imports on consumption goods was down 7%.
- Large swings in Building approvals continue to be seen as high density approvals rise and fall each month. Total approvals rebounded strongly following a sharp fall in the previous month.
- Motor vehicle sales woke from their slumber with a solid 4.5% to end the year in December. The increase saw the annual pace of sales rise from 2.1% to 6.7%.