For the full picture, download the report: Australian Markets Weekly 11 November 2019

• With business investment plumbing the depths, we have analysed trends in corporate income.  Total income is growing strongly, led by a boom in mining profits as non-mining profits languish.  Growth in disposable income is more measured.
• The wedge between total and disposable income mainly reflects sharply higher dividends and tax payments, more than offsetting the lowest interest payments since the 1960s.  As a result, net cash flow for corporates – which is income less investment – is the best since the early 2000s.
• A return to more normal circumstances – where net cash flow is more negative as companies borrow to invest – hinges on a recovery in consumer demand to spur investment.  That seems some time off given wage growth has stalled, such that more policy support is likely to be required, where some government assistance to encourage investment would be helpful.

The week ahead – Australian wages and labour market; RBNZ rate cut; Fed testimony

• Australian wage growth has broadly stalled and we expect slower growth in the wage price index of 0.5% in Q3, with annual growth of 2.2% (mkt: 0.5%/2.2%).  Slow wage growth reflects spare capacity in the labour market, where we forecast unemployment will edge up to 5.3% in October (mkt: 5.2%), notwithstanding solid employment growth of 20k (mkt: 16k). The NAB business survey on Tuesday provides a key update on the state of the business sector. For Wednesday’s RBNZ Monetary Policy Statement we think the OCR committee will, in a finely-balanced decision, err on the side of a 25bp cut in the cash rate to 0.75% and maintain a slight easing bias. This is mainly because it remains nervous about NZ GDP growth not being as strong as it forecast in August.
• Globally, the focus remains on whether the US and China can finalise an interim trade deal.  Fed Chair Powell’s semi-annual testimony is likely to be less important than usual given he recently signalled a pause unless the outlook changes materially. In China, annual growth in Thursday’s industrial production should slow to 5.4%, although the construction sector is benefiting from fiscal stimulus. German GDP is expected to be flat in Q3 after falling by 0.1% in Q2.

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