For the full details, download the full report:  Australian Markets Weekly 23 July 2018

• Last week we conducted a short survey of our readers’ views and outlooks for the Australian economy and key financial market indicators.
• Most have a muddle-through view on the Australian economy – 61% said they were “so-so” on the growth outlook, with 23% bullish and 16% bearish. In line with this result, the unemployment rate is expected to barely edge lower, on average, over the next few years. In fact, quite surprisingly, around 40% of respondents expect the unemployment rate to be higher than it is now by the end of 2019.
• Consequently, most see a very benign inflation outlook – just 2% of respondents see underlying inflation above 2.5% (the mid-point of the RBA’s 2 to 3% target band) at the end of 2019, 12% see it at 2.5% and the remaining 86% see it below the target’s mid-point. With inflation having been low for a few years – and wages growth quite slow currently – we understand where this result comes from. Nevertheless it is surprising that just 2% see any genuine upside to the current underlying inflation rate of 1.9%.
• Readers had a long list of concerns occupying their minds at the present time. The top four concerns in order were: 1) Global trade tensions; 2) a credit crunch in Australia; 3) China’s economy; and 4) Australian Politics. At the other end of the spectrum, few were concerned about Brexit or inflation surprising on the upside.
• Global recession – a slight majority (51%) expect a global recession to start either next year or in 2020. That is interesting, if a little surprising. We’d assess this probability at considerably less than 50%, which holds out the prospect of upside surprises to growth and presumably the chance for re-pricing of assets that presumably somewhat discount this prediction.
• Turning to financial markets, the consensus was for some mild tightening by the RBA by the end of 2019 (one rate hike in weighted-average terms), for the $A to edge lower (US$0.72 was the weighted-average pick for end 2019) and for bond yields to edge higher. Equities were the preferred asset class for the next year, with relatively high weightings to cash and alternative assets. Property, commodities and overseas fixed income were not favoured.
• The survey respondents were roughly: 30% NAB/BNZ staff; 30% business/corporates; 30% banks/superannuation funds/wealth managers and 10% “other”. 95% of respondents live in Australia.
• The key Australian event this week is the Q2 CPI, where the market and NAB look for 0.5% q/q outcomes for headline and core CPI. Sharp rises in petrol prices are the key influence boosting the CPI. We assess mild upside risk to both the headline and core measures on a reported easing in the supermarket price wars. Overseas, a very strong US Q2 GDP outcome is likely on Friday. Focus will also likely be on EU trade negotiators meeting with President Trump mid-week plus an important update on European flash PMIs on Tuesday, for guidance as to how significantly trade tensions may be impacting business confidence.

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