– FEBRUARY 2019 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in February with the cash rate now remaining at 1.50% for two and a half years.
- Data over the past two months has continued to deteriorate.
- As a result the RBA has made a substantial shift in their rhetoric and now sees the risks to the outlook as being more “balanced”.
- Market pricing suggests the risks are skewed to the downside with a rate cut now fully priced in over the next 18 months.
Australian Economic Highlights
- Growth disappointed in the third quarter with the 0.3% increase only half what was expected. The annual rate slipped to 2.8% while the previous quarter’s 3.4% rate was revised down to 3.1%. The RBA downgraded their forecast for growth in 2019 down from 3.5% to 3%.
- CPI slightly exceeded expectations in Q4 with headline inflation rising 0.5% while core inflation rose 0.4%, in line with expectations. The annual rate of headline inflation inched further below the RBA’s target band to 1.8%, while the core annual rate stayed at 1.75%.
- The employment data continues to post interesting outcomes. Jobs growth bounced back in December with jobs growth of 21,600. It edged the unemployment rate down 0.1% to 5% as the participation rate dropped slightly.
- The ANZ job ads suggests that jobs growth will slow down over the months ahead as new ads fell 1.7% over January. Total jobs ads have now been trending down for 8 months
- Business confidence edged up from 3 to 4 over January, but still remains below its long run average while business conditions rebounded to 7 after capitulating in December. The employment index remains solid edging up from 4 to 5, staying above long run averages.
- Consumer confidence declined from December with all sub-indicies falling in January. The headline index was down 4.7% to 99.6, indicating the number of pessimists now outnumber optimists.
- Retail sales fell 0.4% in December, undershooting expectations. The sharp decline is partly a result of sales being pulled forward in November which saw a 0.4% increase in retail sales.
- The downward trend in housing finance continued with weak figures in December. The value of lending to households fell 4.4% and the value of lending to businesses dropped sharply by 9.7%.
- Australia’s trade surplus surged in December to $3.7 bln; however, there may be cause for concern as imports fell 6%, potentially indicating a slowdown in aggregate demand. Net exports are also likely to detract from growth with the increase in exports coming via higher prices rather than increased volumes.
- Building approvals sharply declined for the second consecutive month with approvals collapsing 8.4% in December. With this figure now down 40% from its’ peak, it is clear the construction sector is quickly cooling down.