June 19, 2019

Australian Markets Weekly: High frequency read on the economy

The federal election and lower expected interest rates have contributed to a rebound in business confidence- but not business conditions.

For the full picture, download the report – Australian Markets Weekly 18 June 2019.

  • With the election providing a short-lived boost to employment via the hiring of temporary workers to run the poll and the election and lower expected interest rates both contributing to a rebound business confidence – but not business conditions – we have explored their broader impact using a range of high-frequency indicators.
  • The federal election and lower expected interest rates have contributed to a modest improvement in auction clearance rates and a slower rate of decline in house prices, although these improvements started earlier this year (also, the increase in clearance rates is on depressed volumes, with anecdotes of stronger post-election sales yet to be reflected in higher sales). These developments are encouraging, but the housing market still faces significant headwinds, such as tight credit conditions, a record backlog of homes under construction and a weaker labour market.
  • More broadly, we find it hard to see an impact from the election on consumer confidence, job ads and retail sales, contradicting anecdotes of pre-election weakness and post-election strength. While mindful that the high-frequency data are noisy, we plan to monitor them closely to gauge the impact of upcoming income tax cuts.

The week ahead – The RBA is likely to signal the need for lower interest rates

  • RBA Governor Lowe speaks on Thursday on The Labour Market and Spare Capacity,
    a week after labour market data revealed an unchanged unemployment rate of 5.2%. This was a weak result given the May figures were boosted by 80,000 temporary workers required to run the federal election. We think Lowe will emphasise the need for easier policy to reduce unemployment given the RBA now puts the NAIRU at 4.5%, likely paving the way for the cash rate to fall below 1%.  Lowe may signal a July move, but we think it more likely that the Board will deliver the next cut in August when it
    has an updated set of forecasts. The RBA minutes on Tuesday have been overtaken by events, with Lowe speaking at length last week on the June rate cut.
  • Offshore, the focus is on Wednesday’s FOMC meeting to see if Fed rhetoric shifts to support market pricing of lower interest rates.

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