The Australian jobs market is slowing, as the Reserve Bank feared, but don’t expect any more rate cuts because the central bank reckons it has done enough for the time being and wants to see what happens when the $8 billion in tax returns start hitting the shops.
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As forecast, China’s economic growth slowed in the three months to June to an annual rate of 6.2% – a 27-year low. Partly offsetting the confirmed slowdown was stronger-than-expected gains in June factory output and retail sales.
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China is expected to report its slowest economic growth in at least 27 years later today when it reveals its June quarter and first half (for 2019) GDP figures.
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The chances of a US rate cut seem to have improved sharply after the first of two appearances before US Congress by US Federal Reserve chair Jay Powell.
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For the first time in months, Chinese consumer inflation was steady in June, but there was a worrying slowdown producer price rises which fell to the slowest pace since mid-2016.
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The mini-rally in shares in troubled franchise operator, Retail Food Group’s ended yesterday after a two-day surge that saw them jump 60%.
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You can rule out an interest rate cut by the Federal Reserve at the end of this month after the much stronger than expected jobs performance of the US economy in June.
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More confirmation that the Australian economy continues to drift towards the edge of a slide with a weak retail sales reading for May and the first fall in job vacancies for over a year.
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A record trade surplus for May should be followed by a similar result for this month after successive five year plus highs for iron ore prices this week.
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The slide in house prices slowed in June, now building approvals for May have shown a small sign of slowing on an annual basis. Are we seeing a bottoming out in the weak home building and renovation sector?
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More rate cuts are on the cards from the Reserve Bank after the central bank cut its cash rate by 0.25% for the second month in a row.
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The Reserve Bank monetary policy meeting in Darwin today will have a tiny bit of good news to consider (and ignore) – the slide in house prices again slowed last month with small rises being recorded in Sydney and Melbourne for the first time 21 months.
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The economic news from major Asian economies – China, Japan, and South Korea – wasn’t encouraging at the start of July, the third quarter and the new financial year (in Australia).
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The possibility of a rate cut from the Reserve Bank tomorrow and the usual start of month data for May on trade, building approvals, and retail sales will hold the attention of local markets at the start of the 2019-20 financial year.
Read MoreThe future direction of gold and other commodities and markets will be set this weekend by the outcome of the offstage meeting between President Donald Trump and China’s President Xi at the G20 meeting in Osaka.
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It seems Australia and NZ central banks are lockstep on monetary policy after the latest statement from across the Tasman.
Read MoreThis decade has now seen three global growth scares – around 2011-12, 2015-16 and now since last year. Each have been associated with softening business conditions indicators (or PMIs) as indicated in the next chart – see the circled areas.
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Reserve Bank Governor Philip Lowe has made it clear he wants the federal and state governments to help monetary policy lift the Australian economy, wages and keep employment buoyant.
Read MoreIt wasn’t quite what financial markets had wanted from the Fed – a sort of watch and wait stance with a more obvious bias towards a rate cut, but no rate cut or hint of any timing. Markets wanted more definite news on the timing of a rate cut.
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Several positives suggest recession is unlikely: the current account deficit has collapsed; the $A helps stabilise the economy; the drag from falling mining investment is over; there is scope for extra fiscal stimulus; infrastructure spending is booming; there has been no sign of panic property selling; economic policy remains sensible; population growth remains strong; and the RBA can still do more.
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China’s industrial output growth continues to slow hitting a 17-year low in May, while investment also weakened last month, as did the pace of activity in real estate.
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Given the downside risks for the $A and that being short the $A is a good hedge against threats to the global outlook it still makes sense for Australian investors to maintain a decent exposure to foreign currency via un-hedged global investments.
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Australia’s jobless rate in May was steady in both trend terms (5.1%) and seasonally adjusted (5.2%), according to the latest labour Force report from the Australian Bureau of Statistics – a sign perhaps that the labour market is starting to fade.
Read MoreChina’s exports unexpectedly rose 1.1% in May from the same month in 2018, but imports also surprised with a larger than expected slide of 8.5%.
Read MoreOn Monday Japan reported economic growth of 0.6% for the March quarter from the December quarter (up from 0.5%). The annual rate was 2.2%, up from 2.1% in the first estimate and a 1.6% rate in the 4th quarter of 2018.
Read MoreThe reason why the Reserve Bank cut rates this week and why at least one, and possibly two more cuts are very likely was shown in the March quarter National Accounts with annual growth slowing to its most sluggish since the GFC a decade ago.
Read MoreThe RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation. For investors, it means low-interest rates for even longer.
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ANZ and Westpac failed to pass on the full 0.25% cut from the Reserve Bank to its mortgage customers and immediately faced pressure from the central bank.
Read MoreThe problems in the Australian economy were on full display yesterday, helping explain the RBA rate cut and the sluggish GDP reported later today.
Read MoreAs expected the Reserve Bank cut official interest rates to a new record low of 1.25% on Tuesday (down 0.25%) in an attempt to stimulate a sluggish economy.
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The Reserve Bank may be tempted to delay its second rate cut after the May house price data showed another month of stabilising, but other data yesterday left the picture of the economy as confused it has been in recent months.
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Outside of Australia’s big week, there’s plenty from offshore to grab the attention of investors, topped by the US jobs report on Friday night.
Read MoreTwo big events this week will set the parameters for the Australian economy for the rest of the year. The RBA will cut rates tomorrow and on Wednesday the first quarter GDP figures will show that it was a booming market for commodities, especially iron ore and LNG that kept the economy on track.
Read MoreBusiness investment fell by more than expected in the March quarter while building approvals for April also continued to ease. In fact, the bulk of recent data all but confirms its full steam ahead for Tuesday’s Reserve Bank rate cut.
Read MoreNow, this isn’t what the Reserve Bank wanted to read about – the value of construction work in Australia falling for the third quarter in a row in the three months to March.
Read MoreA cut in official interest rates is on the cards after Reserve Bank governor, Philip Lowe made it clear the central bank’s attempts to lift inflation and cut unemployment will not be met on current policy settings.
Read MoreThe media concentrated on the rise in seasonally adjusted unemployment in April, but the real story was in the trend data where the growth in the labour market is back to levels last seen in August 2018.
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Further evidence yesterday that wage growth continues to be weaker than the Reserve Bank, Federal government and most forecasters think.
Read MoreChina’s April trade data showed an economy softer than in March – exports were weaker than expected, imports a bit better, but yesterday we got more confirmation that China’s economic activity weakened last month (before the escalation in the US trade war at the start of last week) as growth in factory production, investment and retail sales all slowed.
Read MoreThe National Australia Bank has seen March’s surprise jump in business conditions in its monthly survey unwind in April – with conditions, confidence and forward orders now all below average as they were in February.
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