Daily Commentary BY THE CURVE TEAM –

Data Soft Ahead of RBA Meeting

3rd of December, 2019

Disappointing data out yesterday poses questions for the RBA board set to meet today.

The recent run of softening data continued yesterday. Dwelling approvals, commodity prices and business indicators were all weaker than expected. With the RBA currently positioned in a “assessment mode” it will be interesting to see how to factor this data into their forecasts and expectations for the outlook.

Looking in more detail at the key releases, housing approvals for October fell a further 8.1%. That brings the total decline for the year to 23.6%. Unsurprisingly unit approvals, a smaller component of constructions (~40%), are now down 26% for the year. There are obvious risks to the outlook centred on the quantity of construction projects starting, especially the number of larger unit complexes, through the number of people employed on these projects.

Commodity price data out from the RBA yesterday also saw a slight deterioration, falling 3.5% for November. With the index still well above 100 and the decline mainly resultant from mineral and iron ore prices there is less concern here. Importantly, the rural goods component of the index was up and somewhat offset the falls from coal and LNG, which are coming off recent highs.

Arguably, the most important piece of data out yesterday was the GDP partials for inventories and company profits. Both were negative for Q3, -0.4% and -0.2% Q/Q respectively. Later today we get the last remaining pieces of the GDP puzzle when data for net exports and government expenditure are released.

With data of late representing some downside risk to GDP and upside risk to the unemployment rate it poses significant questions to the RBA’s current stance. The problem for the board is that should they move to rate cuts early they will be left with little room to move should the data soften further. We will have to wait and see whether the RBA view this as just a slower than anticipated filtering of recent tax and rate cuts through the economy or an actual change in the trajectory of the economy.

Matthew Dunshea

Client Relationship Manager