June 26, 2018

Australian Markets Weekly – Bigger Australia: population growth still strong

In this Weekly, we dive into the latest Australian demographic data.

For the full details, download the full report: Australian Markets Weekly 25 June 2018

  • This week starts with a higher AUD, on the back of the weekend decision by OPEC to increase oil output by 1 million barrels/day. The decision to increase output was less concrete than expected (it didn’t specify which countries would increase output) and as a result, oil prices jumped sharply, fueling energy shares and commodity currencies, with the AUD a G10 outperformer. Oil prices have reversed part of Friday’s large rises in Asian trading.
  • For the week ahead, ongoing US-led trade tensions will likely continue to be a focus, particularly with further protectionism signaled by US President Trump’s tweets over the weekend. Trump’s latest remarks are unlikely to be comforting to any US trading partners – “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”.
  • Meanwhile, the US-China trade war continues, with the US Administration reportedly deciding to “restrict Chinese investment in US companies and start-ups in sectors from aerospace to robotics” as it further escalates the US-China trade war.
  • Following growing concerns about the impact of US tariffs on China and softening momentum in key activity indicators, the PBoC eased monetary policy over the weekend, cutting the reserve ratio requirement for large banks by 0.5%, freeing up over $100b in capital.
  • All this suggests risk appetite may remain low in the week ahead, and emerging markets will remain under pressure. As a result, the AUD (which is treated as an EM proxy) faces further headwinds and we suspect it is more likely to test the May 2017 low of 0.7329, rather than a sustainable recovery above 75¢.
  • In today’s Weekly, we dive into the latest Australian demographic data. Strong population growth has underpinned economic activity in Australia over recent years through consumption, demand for housing and infrastructure, and also a boost to labour supply – particularly in the eastern states. Australia’s current population growth of 1.6% is strong relative to both its long-run average, and many other countries.
  • While net overseas migration has been a key factor for overall population growth, interstate movements, notably variations in net outflows from NSW and recently outflows from WA and the NT, have led population dynamics in the other states. Residents are now leaving NSW at a faster rate, suggesting a reaction to relative housing affordability; while net interstate outflows from WA appear to have peaked, as the drag from the end of the mining boom diminishes.
  • Going forward, net interstate migration from NSW to other eastern states is likely to remain strong, especially while the disparity in housing affordability remains large/and business conditions in other states remain high.