– JULY 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in July and continues to see a gradual move towards achieving its forecasts over the medium term.
- Short term rates have remained elevated with the slowdown in broad money putting pressure on funding markets.
- Financial institutions are starting to pass the increase in funding costs onto borrowers by lifting mortgage rates.
- The increase in funding costs and high mortgage rates are impacting the outlook for monetary policy.
Australian Economic Highlights
- Growth accelerated in the Q1 with the economy growing 1% while the previous quarter was revised up to 0.5%. Net exports did the bulk of the heavy lifting while investment and government spending also helped.
- CPI was largely in line with estimates in the first quarter. While the annual rate of headline inflation was unchanged, the core rate edged higher thanks to revisions to previous quarters. It has the RBA suggesting core inflation has bottomed for this cycle.
- The pick up in April was short lived as The Employment data for was a little softer, in line with what we have seen so far in 2018 Total growth of 12,000 fell short of estimates. Despite the weak growth the unemployment rate fell 0.2%, drives by a fall in the participation rate. Underemployment remains elevated.
- After a bounce in May ANZ job ads report resumed its decline in June. Jobs ads were down 1.7%, more than offsetting last months revised 1.4% increase.
- The NAB business conditions and Business confidence indexes remained largely unchanged in June at 15 and 6 respectively. The unchanged headline conditions masks the changes in the sub components with profitability and trading conditions rising but the important employment index falling.
- Consumer confidence was largely unchanged in June with the index still hovering just above the key 100 level. Despite the 0.3% rise, the current level of the consumer confidence index continues to point to subdued consumer activity.
- After a welcomed bounce in April, Retail sales were up again in May, rising 0.4%. Food continues to be the main contributor to growth however a late arrival for winter helped clothing and department store sales. The discretionary spending bellwether, cafe and restaurant spending, was down 1%.
- Housing finance was generally softer again in April following the collapse in investor finance in March. Investor finance was down again in April with a small fall in value of loans. The number of loans to owner occupiers was also down while the volume of owner occupier loans was slightly higher.
- Australia’s trade balance has remained in surplus for the first two months of the second quarter with prints of $472m in April and $827 in May. Ironically, despite both Australia’s imports and exports being at record highs, the smaller decline in the level of trade surplus so far this quarter means next exports will contribute far less to growth.
- Building approvals slipped for the second straight month with May’s 3.2% decline adding to the revised 5.6% fall the previous month. Interestingly it was a sharp fall in private housing approvals which drove the decline this month.