December 10, 2018

Australian Markets Weekly – No signs of underlying consumer softening

RBA Deputy Governor Guy Debelle gave a very interesting speech in Sydney last Thursday night. We consider some of the key takeaways.

For the full details, download the full report: Australian Markets Weekly 10 December 2018


  • Last week saw the release of softer-than-expected Q3 GDP figures and an important speech by RBA Deputy Governor, Guy Debelle. This morning, Assistant Governor Kent also spoke. Both Debelle and Kent repeated the view that the next move in Australian interest rates is more likely to be up, but not anytime soon.
  • In today’s Weekly we consider some of the key takeaways from Debelle’s speech, plus look for any evidence for slower consumer spending in Victoria and NSW, the states now experiencing lower house prices. So far, any evidence that house price declines are seeing consumers pulling back is hard to find. Household goods retailing is declining but that would be expected given the slowing in housing turnover. Job ads, job vacancies, consumer confidence and the discretionary parts of retail will be important to follow in coming months to monitor whether the correction in house prices is dampening consumer spending and thus will impact on the RBA’s forecasts for unemployment, wages and inflation.
  • Australian markets continue to be buffeted by global developments, in particular weakness in US equity markets. This has seen a significant repricing of interest rate markets, with longer-dated yields rallying significantly and the market now not pricing any interest rate increase in Australia before 2020 – and flirting with the possibility that if there is a near-term move in interest rates, it would be in a downward rather than upward direction. The continuing weakness in global equity markets has had the traditional impact on the $A, seeing it trade lower, back below US$0.72 at the time of writing.
  • On the Australian calendar, the key events this week are Housing Finance at 11.30am today and the NAB Business Survey at 11.30am Tuesday. We will also be releasing updated Australian growth forecasts along with a revised forecast for interest rates on Wednesday. From then on, there’s little on the Australian calendar until the new year, with the exception of the RBA Minutes next Tuesday and Australian Labour Force data for November on Thursday week.
  • Offshore, the key question is about what the Fed will do at its December FOMC meeting. While the markets still expect another interest rate rise in December, recent speeches reveal a more cautious approach among a number of members, something that seems reasonable given recent global market volatility. Increasingly, markets are expecting the Fed’s language to drop the phraseology about “further gradual rate rises being appropriate”, shifting to becoming more “data dependent”. Again this seems reasonable given rates are now approaching the lower level of estimated neutral ranges and inflation appears relatively stable at the Fed’s 2% target.


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