– AUGUST 2018 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in August and continues to see a gradual move towards achieving its forecasts over the medium term.
- Markets are becoming less convinced with the RBA’s outlook which has seen market pricing for the next move up in the cash rate deteriorate further.
- Growing domestic risks and falling confidence in the international outlook is undermining the RBA’s central forecast.
- As a result the cash rate is likely to remain on hold for the foreseeable future.
Australian Economic Highlights
- Growth accelerated in Q1 with the economy growing 1% while the previous quarter was revised up to 0.5%. Net exports did the bulk of the heavy lifting while investment and government spending also helped.
- CPI was as expected in Q2 with headline inflation up 0.4% while core inflation increased 0.5%. The annual rate of headline inflation edged back into the RBA’s target band at 2.1% while the core annual rate was unchanged at 1.9%.
- The Employment data bounced back strongly in June with total employment growth of 50,900, mostly full time. Despite the surge, the unemployment rate remained little changed at 5.4% thanks to a 0.2% increase in the participation rate.
- The ANZ job ads report has remained volatile in recent months, rising by 1.5% in July after a 1.7% fall the previous month.
- The Business confidence index continues to hover around the long run average, rising from 6 to 7 in July . The pull back in the Business Conditions Index has accelerated after spending 9 months at very strong levels. The index now sits at 12, well down on the 20 level 3 months ago.
- Consumer confidence posted its first solid bounce in some time, jumping by 3.9% in July, taking the index to 106.1. Long term expectations around the economy were the big driver behind the improvement as family finances remain subdued.
- Retail sales rounded out the quarter with another reasonable increase in the face of weak wage growth, high debt and falling house prices. The annual pace of sales continues to hover just above the pace of wage growth with little scope to accelerate from here.
- Housing finance continues to slide, driven by a pull back in investor appetite. June also saw the outstanding balance of investor debt fall for only the third time in the past 30 years according to RBA data. The last two times it happened was during “the recession we had to have” and the GFC.
- Australia’s trade balance posted a huge surplus in June as prices continued to help boost trade revenues. Despite the large surplus for the quarter, steady volumes mean net exports will have minimal impact on GDP for the quarter.
- After falling for two straight months, Building approvals bounced back, lifting 6.4%. While apartment approvals remain volatile, private housing approvals continue to rollover as house prices continue to fall.