– APRIL 2017 INSIGHTS BY THE CURVE TEAM –
- The RBA once again elected to leave the cash rate on hold at 1.50% following their April Board meeting.
- The accompanying statement to the decision saw a less optimistic and more cautious outlook.
- New macro prudential lending oversights reduce upside risk to interest rates.
- While downside risks prevail, they could be offset by monetary policy divergence between the FOMC and the RBA.
Australian Economic Highlights
- Growth bounced back in Q4 with GDP rising by 1.1% for the quarter. The pick up in growth saw the annual rate of growth rise to 2.4%, ahead of the RBA’s forecasts. The improvement in some sectors could prove unsustainable, casting a cloud over the outlook for growth.
- CPI was soft again in Q4. Headline inflation was up 0.5%, short of the 0.7% rise that was expected. The quarterly increase was still enough to lift the annual rate from 1.3% to 1.5%. The RBA’s preferred measure, core inflation, just missed expectations, rising by 0.4% which saw the annual remain largely unchanged at 1.5%.
- The employment data remained soft in February with total employment falling 6,400 after a modest gain was expected. The swing between full and part time went against with trend while the unemployment rate edged up a further 0.2% to 5.9%. The recent weakness in the data has seen the trend unemployment rates start to turn higher which is a worrying sign.
- ANZ job ads were soft again in March, posting a moderate gain of 0.3% after last months decline of 0.7%.
- The NAB survey gave back the previous months bounce in February. The NAB business conditions bounced back after last month’s sharp decline with the index lifting 5 points to 14, largely due to a rebound in trading conditions. Business confidence on the other hand remains subdued in comparison, slipping 1 point to 6.
- Consumer confidence printed below the key 100 level for the fourth straight month in March as consumers remain cautious on their own finances, especially compared to a year ago even after two rate cuts last year.
- Retail sales are starting to suffer as a result of consumers lack of confidence in their own finances. Retail sales were down 0.1% in February while the trend monthly change has slowed from 0.4% to just 0.1% over the past six months.
- Housing finance collapsed in February driven by investors. The number of owner-occupier loans and the value of occupier loans were both down 0.5%. The value of investor lending was down 5.9%, more than offsetting the 4.6% increase the previous month.
- Australia’s trade surplus bounced back as expected in February after January’s unexpected decline. The drivers were disappointing with the bounce due to a sharp fall in imports (-5%) rather than exports picking back up. Driving the fall was a 10% decline consumption goods imports, another sign consumption is waning.
- Building approvals posted an unexpected rise in February with both private housing and medium density approvals up over the month. The trend still points to lower approvals ahead with the annual rate still negative.
- In yet another sign consumption is struggling, Motor vehicle sales fell sharply in February. The 2.7% decline was broad base with all categories seeing sales fall over the month with total sales now down 4.1% on a year ago.