– JULY 2019 INSIGHTS BY THE CURVE TEAM –
- As flagged in the aftermath of the June rate cut, the RBA lowered the cash rate again in July, taking it to a new low of 1.00%.
- Governor Lowe once again highlighted that the decision was not driven by a deterioration in the outlook but rather a revision to their assessment of what constitutes full employment.
- Lowe continued to stress that monetary policy cannot do it alone and repeated calls for other arms of policy to play their role.
- Markets continue to price in another cut for early 2020 but the key to the outlook will come in next months Quarterly Statement on Monetary Policy.
Australian Economic Highlights
- Growth fell short of estimates again in Q1 with the economy only growing by 0.4% as the weakness from the second half of 2018 spilled into the start of 2019. The annual pace of growth slowed further from 2.4% to 1.8% and is likely to undershoot the RBA’s estimate this quarter.
- Inflation came in well below expectations in Q1 with headline CPI flat for the quarter which saw the annual rate fall from 1.8% to 1.3%. The RBA has moved to using the trimmed mean as their preferred measure of core inflation and it increased by 0.3% for the quarter with the annual rate slipping from 1.8% to 1.6%
- The employment data managed to comfortably beat estimates again in June with a another solid increase in new jobs. Despite the 42,300 new jobs created, the unemployment rate remained unchanged thanks to yet another rise in the participation rate.
- The ANZ job ads partly reversed its 8.4% fall from June with a 4.5% increase in May. Despite the bounce, the series remains in a downtrend.
- The boost in Business confidence following the election result was short lived with the index giving up 5 of the previous months 7 point gain to be sitting at 2, below the long run average. Business conditions posted a modest improvement with trading conditions increasing from 3 to 6 while profitability and forward orders remained at -2 and -4 respectively. One positive was an increase in the employment index from 2 to 5.
- Consumer confidence remained largely unchanged for the second consecutive month just above the key 100 level. The index was down 0.6 from a month earlier where it rose by the same about. This months will prove more interesting after another rate cut from the RBA.
- After lacklustre first quarter, Retail sales have remained soft through the second quarter. After falling 0.1% in April, they failed to post a solid bounce in May, only rising by 0.1%. The one positive was that food retailing was the primary drag on the overall number during the month.
- Housing finance remains under pressure, with investors still leading the declines in new approvals. The value of investor finance was down a further 2.2% in April which was somewhat offset by a 1% rise in the value of owner occupier approvals. Interestingly, despite the rise in the value of loans, the number of owner occupier approvals was down 1.1%.
- Australia’s trade surplus continued to hit new record highs. The surplus came in at $5.75bln in May as solid revenues from exports, particularly iron ore and LNG.
- After a volatile few months, Building approvals were largely unchanged in May. Approvals are still down around 20% over the past 12 months and down almost 40% from their late 2017 peak.