Australian Markets Weekly – At the bottom of the mining cycle?

In this weekly, we look at a number of indicators that are increasingly suggesting we are broadly at the bottom of the mining cycle.

By Ivan Colhoun

At the bottom of the mining cycle?

In this weekly, we look at a number of indicators that are increasingly suggesting we are broadly at the bottom of the mining cycle (admittedly after five very tough years). Business confidence has improved in mining and in WA in recent months, commodity prices have been more stable – and in the case of coal prices have surged – while job ads in mining have bottomed and are rising in engineering.
While NAB retains a cautious medium-term view on the outlook for major Australian commodity prices, this bottoming should provide some support for company profits, company tax receipts and the budget, nominal GDP growth and state government royalty receipts. It will likely add somewhat to the concern that global inflation and bond yields have broadly bottomed.
The key events in Australia this week will be a speech by RBA Governor Lowe on Tuesday morning entitled “Inflation and Monetary Policy” and Thursday’s September Labour Market report. The Governor’s speech should be closely watched to gain insight into how patient the RBA may be in terms of returning inflation to the target band. NAB is looking for an unchanged 5.6% unemployment rate (market looks for 5.7%), but we highlight the risk of a stronger-than-expected employment result (+30K or greater) as a weak employment cohort rotates out of the sample.
Offshore, we will monitor this week’s NZ CPI closely to finalise our Q3 CPI pick as some NZ components provide a guide to the Australian outcome. Our preliminary forecasts are 0.8% q/q for the headline and 0.4/0.5% q/q for the core rate – outcomes that should see the RBA leave interest rates unchanged in November and over coming months.
In markets, the trend remains to higher bond yields, which has been broadly US$ supportive. The $A has been supported against the US$, but has gained against the crosses as a result.

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