Daily Commentary BY THE CURVE TEAM –

Plethora of Data Updates

2nd of March, 2021

Multiple data updates yesterday paint a diverse picture of the economy.

Housing finance approvals were up 10.5% in January, leaving them 44% higher for the year. First home buyers and homebuilders led the gains, with construction related financing up 15.7% for the month despite lower grants from the HomeBuilder scheme.

First home buyers are up 73% on last year and 10.1% for the month. These strong numbers saw house prices rise strongly over January.

The other positive update was job ads, which were up 7.2% for, leaving them 13.4% higher for the year. This is very encouraging for employment and suggest employers are keen to fill the slack still in the labour market.

Not as strong yesterday were company profits, which were down 6.6% for Q4. The saving grace here is company profits surged over Q2 and Q3 from fiscal support, namely JobKeeper payments.

Inventories stabilised to be flat over Q4 after declining in the last two quarters. Wages similarly remain very low, up 0.7% for the year and 1.4% for Q4.

Putting together all these updates, the main takeaway is the drastic effect fiscal and monetary policy are having on the economy. Fiscal support has propped up companies that otherwise would have been liable to large losses or failure over the recession.

Monetary support has lit a fuse on new lending albeit overall credit growth is more muted from increased repayments. Assuming this support tapers, as it is expected to, the transition to the private sector driving growth remains uncertain.

However, markets are very optimistic and there is reason to be. Supply side reforms from the most recent budget and stimulus leave plenty of dry powder for the economy. Already employment has begun recovering strongly and government bond yields are on the rise.

The RBA remains coy though, which is also justifiable. There is no guarantee the economy will simply boom with all the monetary fiscal and monetary support and there still remains a lot of slack in the economy, especially in their main metrics of inflation and employment.

Significantly, the RBA purchased double their usual amount of government bonds yesterday as yields rose. It signalled that the RBA stand ready to defend their QE and 3-year government bond target despite rising asset prices and growing optimism.

The RBA’s policy decision is today, where no change in their stance is expected. However, over the coming months they will face more difficulties if house prices run hot and market optimism continues.

Josh Stewart

Associate - Money Markets