Daily Commentary BY THE CURVE TEAM –

Data Give Government More Ammunition

4th of July, 2019

Less than a day after the RBA rate cut and the latest data has thrown the spotlight back on the Government to get busy and support the economy.

With the RBA calling out the Government to do more on infrastructure spending to support the economy, yesterday’s data helps remove one potential hurdle to that becoming a reality. Thanks to soaring commodity prices, Australia’s record run of trade surpluses continued in May, coming in at almost $6bln for the month alone.

The booming trade surplus gives the Government the opportunity to use the windfall to look at more infrastructure without harming the budget. Currently the iron ore price is almost double the level that the latest budget assumed which will help boost the budget bottom line significantly.

There are obvious risks that this windfall could prove temporary. However the iron ore price would have to completely crash for that to be the case.

While on the Government, it looks like the tax package that they took to the election will go to the senate today. If approved, the backdated tax cuts could start hitting tax payers bank accounts within a week.

This is a positive for the outlook. However RBA downplayed significant the impact will be, suggesting that the short term sugar hit is likely to only provide a marginal increase to growth over the year ahead.

We will see just how much support consumers might need today when the latest retail sales figures are released today. The market is expecting a rather soft 0.2% increase after sales fall by 0.1% the previous month.

David Flanagan

Director - Interest Rate Markets