December 21, 2015

Australian Markets Weekly: Slower population growth halted for now

We draw attention in this Weekly to the importance of growth in the population to the economy and how population growth has slowed in recent years.

  • As the last Weekly for the year, we would like to offer our best wishes to our readers for the festive season. We have also enclosed with this Weekly an extended calendar through to the first week of January. We will recommence publication of the Australian Markets Weekly on Monday 11 January.
  • We draw attention in this Weekly to the importance of growth in the population to the economy and how population growth has slowed in recent years. We also observe that this slowing in population growth halted in the June quarter, though it is not yet clear whether this is a temporary halt to the slowing trend or heralds the prospect of a stabilisation in population growth or a gradual turnaround in population growth.
  • With the Fed having increased rates for the first time in 9½ years last week, the market will be paying close attention to the US data flow in the weeks and months ahead, to gauge when the Fed might next move. The next FOMC meeting is January 29 and the market is not pricing in a material prospect of another hike at that meeting. That seems logical given the Fed’s stated “gradual” strategy for rate moves.
  • The next hike is not priced until mid-2016, by which time the FOMC will have met in January, on 16 March, 27 April, and 15 June. The market as of today has only priced two rate hikes by the end of 2016, less than the FOMC’s central tendency forecast published in last week’s official forecasts, which see a fed funds rate at the end of 2016 of 1.4% (ie four rate hikes) and compares to NAB’s expectation of three rate hikes for 2016. The timing and extent of Fed moves will of course be data dependent. NAB expects the next rate increase in March, with further moves in July and October.
  • It was a little surprising to see the AUD steadier on Friday night in what was a “risk-off” session with higher market volatility, a factor that is usually fundamentally negative for the Aussie.
  • A bounce in commodity prices – including iron ore, but not oil – and a generally softer US dollar both offered support, though for the week as a whole, the AUD ended lower against most currencies. NAB continues to expect the AUD to trade toward US$0.68 in H1 2016.
  • In this context, we note that FX market positioning data as reflected in IMM/CFTC data released Friday (for the week ended Tuesday 15 December – 24 hours before the Fed announcement) shows overall net US dollar long positioning having been scaled back significantly after only a small reduction in the prior (ECB) week. On the other side of the ledger, short positions in the JPY, AUD and CHF were pared back, with short positioning in the AUD for example cut to 10.5K contracts from 33.6K the previous week, back much closer to a net square position.
  • As we move into holiday season, the scheduled Australian data and event flow is now much lighter. There are some important data this week but not locally, the next market sensitive Australian data RBA credit due next week, followed in the first week of the New Year by the release of building approvals, trade and retail sales reports.
  • The US data flow this week is also light in the first part of the week with the key US personal spending/PCE deflators report and durable goods orders likely the pick for this week, but not out until Wednesday.
  • In this final Weekly for 2015, we tease out some implications of the slower population growth that’s been evident in recent times. Population growth however showed no further slowing in June 2015, the latest available quarterly population data.

For full analysis, download report:

Australian Markets Weekly: 21 December 2015 (PDF, 334KB)

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