For the full details, download the full report: Australian Markets Weekly 17 December 2018

• Last week, the global news flow dominated local markets with the drama of Brexit negotiations generating uncertainty, while Chinese monthly activity data and EZ Flash PMIs painted a relatively soft picture for global growth. These developments have caused further falls in equity markets in the US and Australia, and the $A is trading back below US$0.72 at the time of writing.
• Domestically, recent home loan approvals data was stronger-than-expected in October, with the number of loans for owner occupiers jumping 2.2% in the month. It’s a sign that, perhaps, the decline in home loan approvals may be slowing – although we’ll need a few more months of data before saying anything for certain. Special questions released in the latest NAB Business Survey suggest that businesses are less concerned about the impact of moderately lower house prices in Sydney and Melbourne housing than media reports would indicate. When asked about the key drivers of business conditions, only roughly 10% cited slowing housing prices, while around 55% cited consumer demand. 75% indicated no impact from slower house prices and only around 2% a significant impact.
• In the week ahead, besides today’s just-released MYEFO (see your inbox for our note, which shows the Australian budget continues to improve faster than expected), the RBA Minutes (Tuesday) and Labour force data (Thursday) are the focal points. NAB expects employment grew 20k in November and that the unemployment rate stayed at 5% (alongside an unchanged participation rate). For us, there’s a risk that the unemployment rate could even tick down to 4.9% if the participation rate continues the oscillating pattern evident for the past six to eight months (and ticks down a little).
• Abroad, the Fed remains likely to implement a 25bp hike in policy rates on Wednesday (Thursday morning AEDT), unless equity markets become significantly more unsettled over the interim. Markets will be focused on the Fed’s expectations for interest rates year (the so-called Fed dots), and whether they are lowered given markets now only price one rate hike in 2019 compared to the Fed’s current dots of three hikes. It’s likely the Fed will formally be more driven by developments in the date and remove the statement that “further gradual increases [in rates]” are likely to be required, from its post-meeting Statement.

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