– MAY 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in May and continues to see a gradual move towards achieving its forecasts over the medium term.
- Short term rates have eased back over the past week; however, the yield curve continues to steepen.
- There is a growing consensus that from a global perspective inflation is on its way back.
- Risks to the domestic outlook remain skewed to the downside, suggesting any change to the cash rate is some way off.
Australian Economic Highlights
- Growth for Q4 came in at 0.4%, short of both the market and RBA’s expectations. The economy grew just 0.4% in Q4 which saw the annual rate slow to 2.4% from an upwardly revised 2.9% last quarter.
- CPI was largely in line with estimates in the first quarter. While the annual rate of headline inflation was unchanged, the core rate edged higher thanks to revisions to previous quarters. It has the RBA suggesting core inflation has bottomed for this cycle.
- Employment data has slowed rather dramatically the past two months. Total employment was up 4,900 in March while February’s gain of 17,500 was revised to a decline of 6,300. The unemployment rate remained stable at 5.5% thanks to a fall in the participation rate.
- The weakness in the ANZ job ads report continued for a third straight month. Falls for the past three months are at odds with the NAB business survey employment index which is hovering near a record high.
- The NAB business conditions bounced back equal its record high going back to 1997 with the index at 21. The Business confidence also improved with the index rising to 10, above its long run average of 6. Wage and cost pressures remain absent according to the survey.
- Consumer confidence slipped a little in April but managed to hold above the key 100 level. Family finances continue to prove a drag on the index which remains well below the 105-115 level, typically associated with a robust consumer.
- The February bounce in Retail sales was short lived with sales flat in March and falling 0.5% excluding food. The result dragged down the quarterly performance with sales ex-inflation only 0.2% in Q1.
- Housing finance remained stable again in February. Headwinds to housing finance are growing as negative headlines from the Royal Commission increase the push for tighter lending standards while funding costs continue to rise.
- Australia’s trade balance has gone from strength to strength throughout the first quarter. After solid results in January and February, the trade surplus rose to $1.5bln in March. Net exports are expected to boost growth in the first quarter.
- Following large swings in Building approvals as high density approvals rise and fall each month, total approvals were more stable in March. Approvals rose 2.6% to be 14.5% higher than a year ago but remain 10% below the 2015-16 peak.