– August 2019 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold at 1.00% in August as was widely expected after lowering it by 25bp in June and July.
- Rates globally have continued to fall with a number of other central banks cutting rates the past months which has seen yield curves flatten significantly.
- We got a number of updates from the RBA the past week that both provided clarity over the near term outlook but posed more questions over the long term outlook.
- It is clear more monetary policy easing is coming but what form it takes is open to debate.
Australian Economic Highlights
- Growth fell short of estimates again in Q1 with the economy only growing by 0.4% as the weakness from the second half of 2018 spilled into the start of 2019. The annual pace of growth slowed further from 2.4% to 1.8% and is likely to undershoot the RBA’s estimate this quarter.
- Inflation came in slightly above expectations in Q2 with headline CPI printing at 0.6% for the quarter which saw the annual rate lift from 1.3% to 1.5%. The RBA has moved to using the trimmed mean as their preferred measure of core inflation and it increased by 0.4% for the quarter with the annual rate steady at 1.6%
- The employment data was well below estimates in July with a margin 500 jobs added. Despite the low number of jobs created, a positive revision on the 42.3k to 45.3k in June, saw the unemployment rate remained unchanged at 5.2% thanks to yet another record high reading in the participation rate.
- The ANZ job ads continued is recent volatility with a modest 0.8% increase in August, a significant slowdown from a revised 4.9% print in July.
- Business confidence posted a small 2 point gain in July with the index climbing to 4 but remains below its long run average. Business conditions also remains below its long run average, losing 2 points to 4. The crucial employment index, which had been the main positive the past few months, fell sharply from 5 to 0 which doesn’t bode well for the employment outlook.
- Consumer confidence dipped below the crucial 100 level, registering at 96.5. Large falls in expectations for the economy 1 and 5 years ahead, down 17.4% and 12.2% respectively, were key contributors. This months will prove more interesting after another rate cut from the RBA.
- After lacklustre first quarter, Retail sales have remained soft through the second quarter. After rising only 0.1% in May, June data provided a modest again of 0.4% . Ex-inflation sales for Q2 were only 0.2% meaning ex-inflation sales are only up 0.1% over the first half of the year.
- Housing finance showed some signs of life in June with small gains across the board. The value of owner occupier and investor lending were up over the month, rising 2.4% and 0.5% respectively. Headwinds to new lending still remain despite recent rate cuts.
- Australia’s trade surplus continued to hit new record highs. The surplus came in at $8bln in June as solid revenues from exports, particularly iron ore and LNG.
- After a volatile few months, Building approvals continued their downtrend. Approvals are still down around 25% over the past 12 months and down almost 45% from their late 2017 peak.