– FEBRUARY 2017 INSIGHTS BY THE CURVE TEAM –
- The RBA picked up in 2018 where it left off in 2017, leaving the cash rate on hold at 1.50% in February.
- While the cash rate has remained anchored, the yield curve has moved around substantially over the past two months.
- Markets have found themselves in a funk as they recalibrate their expectations on the reality the monetary policy punchbowl is being taken away.
- Expectations for a cash rate increase in Australia continue to dwindle as concerns over the outlook for consumption remain the biggest risk to the outlook.
Australian Economic Highlights
- Growth for Q3 came in at 0.6%, short of both the market and RBA’s expectations. The annual rate lifted from 1.9% to 2.8% after the negative read from last year dropped out of the calculation; however, the market and RBA were expecting an increase to 3%.
- 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 capped off its best calendar year on record with a further 34,700 jobs added in December. The unemployment rate increased by 0.1% to 5.4% despite solid growth after the participation rate rose to a new near term high of 65.7%.
- The ANZ job ads report continues to suggest employment growth will remain solid in the months ahead, with a huge jump of 6.2% in January.
- The NAB business conditions index bounced back to record highs in January on the back of robust profitability and trading conditions. The Business confidence index edged up slightly from 10 to 12, with both indices above long run averages. The employment index dipped from 8 to 6.
- Consumer confidence has shown a marked improvement over the past two months buoyed by the outlook for the economy with optimists outweighing pessimists in January. That could quickly change in February following the surge in volatility in global markets.
- After a very solid November rise on the back of the iPhone and special sales events, Retail sales eased back in December. Inflation adjusted sales were ok for the quarter but show there is some substantial discounting happening to attract sales.
- Housing finance looks to have topped with the the weakness in investor finance approvals now seeping into the owner occupier market. The number and value of loans were both down in December with re-financing the only segment to show an improvement.
- Australia’s trade deficit continued to decline in December despite a surplus being expected. The trade deficit grew to $1.358bln as imports continued to outpace exports.
- Large swings in Building approvals continue to be seen as high density approvals rise and fall each month. Total approvals remain well off their peak and are unlikely to pick up in the near term.
- 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%.