Daily Commentary BY THE CURVE TEAM –

Data Deluge Follows Downbeat Outlook

2nd of June, 2017

Less than 24 hours after receiving a downbeat assessment of Australia’s economic outlook from S&P’s ratings chief, we received a deluge of key economic data. The ABS provided us with the latest retail sales figures along with the first quarter’s capital expenditure report and outlook for the year ahead while CoreLogic released its house price report for May.

Retails sales bounced back in April after a weak run spanning four months. The headline increase was 1%, well ahead of the 0.3% increase expected but all is not as it seems. Spending on food, the largest component of total sales, was up 1.2% thanks to price increases as a result of cyclone Debbie. Queensland was also the biggest contributor by state for a similar reason. Elsewhere, sales remained soft in aggregate.

The CAPEX report followed a similar pattern with expenditures up 0.3%, a touch short of expectations but largely in line with what we saw from the construction work figures released recently. With capex it is all about the outlook. Estimate two for the year ahead improved slightly with total capital expenditure on a realisation ratio basis now expected to only fall 9% against the previously expected 11% fall.

Finally the house price report revealed what many have been worried about, that house prices are starting to stall. The CoreLogic house price index saw the 5 city average fall 1.1% in May, its first decline since November of 2015. The declines were led by Sydney and Melbourne while Perth continued to see price declines. Interestingly prices in Sydney were flat for the last three months.

The data comes at an interesting time as questions continue to mount over the outlook for Australia’s economy. Next week will see a bunch of partial GDP indicators ahead of the final release on Wednesday, which is now expected to be quite weak. It will be very interesting to see what the RBA has to say after they meet next Tuesday.

David Flanagan

Director - Interest Rate Markets