Daily Commentary BY THE CURVE TEAM –

Domestic Data Solid as Markets Wobble

31st of January, 2018

The week of key domestic data kicked off yesterday with the December NAB Business survey providing a positive lead after another solid result. While data offshore was positive once again, the little wobble markets had the previous session got a little worse overnight with some big moves.

The NAB monthly business survey continues to be a pillar of strength in the monthly run of domestic data. Business conditions remain elevated and well above long run averages with the overall index edging unchanged at 13 despite improved trading conditions and profitability.

Business confidence were the big improver in December with the index climbing back in to double digits hitting 11, up from 7 the previous month. The persistent improvement in business conditions is helping to keep confidence up, something that would also benefit from a more sustained lift in forward orders.

From a broader economic perspective, the key is still the employment index which remains around recent highs. We need to see continued strength in the labour market, not only to keep pace with the growing labour force but to eat into the spare capacity and provide some upward pressure on wages.

Offshore overnight and the market wobbles from the previous night got a little worse. Equity markets extended their losses posting their biggest two day fall in a number of months. Despite the fall, bond markets continued to drift with US 10 year yields up another couple of basis points.

The focus will now shift to today’s local inflation report. The outcome of the report will likely have a significant impact on the upcoming update to the RBA’s forecasts in next Friday’s quarterly Statement on Monetary Policy.

David Flanagan

Director - Interest Rate Markets