– DECEMBER 2019 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold at 0.75% in November as was widely expected.
- Markets have priced in another interest rate cut for May next year where last month it was considered closer to a 50/50.
- Despite the RBA’s best efforts to remain optimistic about the outlook, data for the retail and consumer segments of the economy remain weak.
- Risks remain skewed to the downside.
Australian Economic Highlights
Growth was below estimates in Q3, with the economy only growing by 0.4% as the weakness from the second quarter continued. The annual pace of growth remained low at 1.7% and is likely to undershoot the RBA’s estimate this quarter.
Inflation pressures remains weak in Q3, with both headline and core inflation printing in line with expectations. The headline index was up 0.5% which saw the annual rate edge up to 1.7%, while the trimmed mean was up 0.4%, leaving the annual rate unchanged at 1.6%. Both were in line with the RBA’s forecasts.
Employment data was above estimates in October, with a loss of 19,000 jobs over the month. The unemployment rate lifted slightly to 5.3% with the participation rate eased back 0.1% to 66.0%.
In a continuation of its recent slide, the ANZ job ads fell a further 1.7% in November. It continues the recent trend of softening job ads that are now down 15% since their May 2018 Peak..
Business confidence returned to 0 in November, losing the 2 points gained in October. Business conditions remained flat at 4 points for November. The crucial Employment index also remained steady at 4 points for the month.
Consumer confidence rose in November and defied its recent run of soft prints. The index posted a 97.0 reading, which was a 4.5% rise over the October low. This year, every month where a rate cut occurred there has been a drop in confidence, followed by a bounce the next month.
- Retail sales had another poor quarter in Q3 with total retail volumes falling for the third time in the past 4 quarters to be down over the past 12 months. It is the first time retail sales volumes have gone backwards since the 1990s recession.
- After a mixed run of data, housing finance was slightly up in October. The value of new credit to owner occupier’s continue to rise but by a reduced rate, printing at 0.4% for the month resulting in the smallest annual change since 2014. Growth in outstanding credit continues to slow as mortgage holders continue to repay their loans quicker thanks to interest rate cuts.
- Australia continues to post robust trade surplus’s, chalking up another $4.5bn in October. Despite a relatively high surplus, this represented the smallest surplus since December. The declines were largely centred on reductions of commodity exports, which are rescinding from recent highs.
- Building approvals resumed the recent downtrend with a 7.0% decline in October. Despite the bounce they are still down 19% over the year and almost 50% from their peak.