Daily Commentary BY THE CURVE TEAM –

Domestic Data Stronger Ahead of RBA

5th of June, 2018

The RBA’s monthly meeting is scheduled for today and while no change in the cash rate is expected, the accompanying statement will be closely watched. There will be plenty for the RBA to talk about after the monthly data and GDP partials came in ahead of expectations yesterday.

The latest GDP partial indicators now suggest the risk are to the upside when the final print is due out on Wednesday. The market is already expecting a solid 0.8% for the quarter and with only a couple of partial indicators left to be released, expectations could be revised higher.

Company profits for the first quarter comfortably beat expectations and were consistent with what we have seen from the monthly business survey in recent times. Profits were up 5.9% against expectations of a 3% rise while the Q4 outcome was revised up from 2.2% to 2.8%.

Inventories are expected to add to GDP after rising 0.7% after they were expected to be flat from the previous quarter. Inventories are a tricky one to read, if they are up because businesses are stocking up ahead of an expected increase in demand then that is good news. If they are up because of a lack of demand and lower than expected sales then that is obviously the opposite. Sales for the first quarter suggest it could be the later.

On sales and the latest retail sales data for April were a touch better than expected. After a weak first quarter, sales pick up a little, rising 0.4% for the month, slightly ahead of the 0.3% rise expected. The movement in the subcomponents were mixed too, it is too early to tell if discretionary spending is making a comeback or if consumers are simply saving to spend.

While the recent run of data will give the RBA something to think about, we are unlikely to see much of a shift in their rhetoric when they release their accompanying statement later today at 2:30. It will take a solid beat from the final GDP print to push the annual rate above the RBA’s forecasts and with a solid rise in Q2 last year, growth will need to remain strong to keep the annual rate tracking towards 3%.

David Flanagan

Director - Interest Rate Markets