Weak Global Data Clouds the Outlook

15th of August, 2019

Weak data out locally and offshore in the last 24 hours has triggered large market sell offs and added more uncertainty to the outlook.

In a big 24 hours for data, yesterday saw the release of of yet another soft release of the ABS Wage Price Index. Whilst the 0.6% Q2 read was inline with the RBA’s forecasts and wider market expectations, it is yet another clear indication that growth in wages remains soft.

With wages soft, it was unsurprising to see that despite the pick in headline consumer sentiment index (100 vs 96.5 last month), families are still not enthused about their own situation. The Westpac survey indicated that despite consumers seeing a positive effect in the wider economy from recent rate and tax cuts with economic conditions up 9.6 and 4.5pts for 12 month and 5yrs forward respectively, at the personal or family level, serious concerns to the outlook, especially for consumption, remain.

Offshore we saw more evidence of the slowdown in the global economy from two countries at the centre of the global supply chain.

The monthly run of economy activity data from China provided disappointment across the board. Industrial production, retail sales and fixed asset investment all missed expectations. Not long after the release, we got confirmation that the German economy went backwards in the second quarter. It was the second negative print in the last 12 months with the economy not growing at all over the past year.

The raft of weak data, adding to the growing evidence is a slowing of global growth, put further pressure on global financial markets. Equities were under pressure throughout the overnight session which in turn saw bonds bid, driving long term yields even lower.

Briefly the US 2year/10year Treasury curve inverted, adding further fuel to the fire. In 5/6 last occurrences of a curve inversion of this nature, the US economy fell into recession within 12-18 months.

This heighten volatility in financial markets, weakness in data and concerns for the growth outlook will all be of key importance for central banks around the globe whom many of which are already looking to add further stimulus over the months ahead.

Matthew Dunshea

Client Relationship Manager