June 2, 2020
Australian Markets Weekly: the main questions asked about the Australian economy
This week, we thought it might be interesting to discuss the most common questions we are getting asked by businesses and investors on the outlook for the Australian economy.
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There are eight questions commonly asked:
- Could the Australia/China political situation deteriorate substantially and be a major negative for the Australian economy?;
- What does the economy look like in two to three years?;
- What happens after the JobKeeper and JobSeeker schemes end in September – will the economy fall off a cliff?;
- What will be permanently different?;
- What’s the outlook for immigration?;
- What are the opportunities for broader reform?;
- What are the implications for the Australian economy if the US reopens too early and is then forced to have another phase of significant lockdowns?;
- Why is the US stock market so high?
The week ahead
- It’s a big week domestically with the RBA Board Meeting (Tuesday) and Q1 GDP (Wednesday), though both are unlikely to faze markets too much given the very-backward looking nature of GDP and Governor Lowe’s comprehensive remarks at a Senate Select Committee last Thursday. At that hearing Governor Lowe said the economy was tracking a bit better than earlier expected, broadly between the RBA’s baseline and upside scenarios, again pushed back on the prospect of negative rates in Australia, defined forward guidance as “not going to be raising interest rates until full employment is achieved and we’re sustainably within the 2-3% target”, and said his “main concern is that we don’t withdraw the fiscal stimulus too early”. As for GDP, NAB is forecasting Q1 to fall -0.1% q/q (consensus -0.4%), though the debate is now turning to the extent to which Q3 GDP will be positive as the economy reopens after an expected horrific contraction in Q2 (NAB -7.5/-8.5% q/q for Q2).
- It is all about the ECB (Thursday) and US Jobless Claims and Payrolls (Thursday and Friday). As for the ECB the consensus looks for a €500bn increase in QE via the Pandemic Emergency Purchase Program (already at €750bn). As for Payrolls, while they should show another sharp rise in the unemployment rate to 19.6% and the loss of 8m more jobs, more interest could be with Jobless Claims given the first signs of a peak last week and the consensus looking for another decline in continuing claims. Focus will also remain on signs of activity lifting with the US ISMs for May (Monday and Wednesday) as well as ongoing US/China political tensions.
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