January 30, 2019

Australian Markets Weekly – What to make of the latest NAB Survey?

Business Conditions and NAB

For the full details, download the full report: Australian Markets Weekly 29 January 2019


  • The week has begun with a broad risk-off tone, following disappointing earnings reports from Caterpillar and Nvidia, two industry bellwethers that both pointed to a slowdown in Chinese demand for their woes.
  • On the back of this, oil prices are down around 3% and equities have opened around 0.4% lower. Risk sentiment was not helped by news overnight that Trump said the chance of a bipartisan deal to avert the government shutting down again was “less than 50-50” and again threatened to use his emergency powers if required to build the wall.
  • It’s worth noting this week is the busiest week of the US earnings season, with over 100 of the S&P500 reporting, including Amazon, Apple (early tomorrow morning) and Facebook. Also on the global schedule data-wise is China PMIs, the FOMC meeting, US Payrolls and ISMs. Geopolitics will also remain a focus with further Brexit and US/CH trade talks. For Australia of course, the highlight will be Q4 CPI released tomorrow – NAB is expecting a soft headline outcome of 0.3% q/q, 1.6% y/y.
  • In the light of the ongoing volatility, which spiked in December, what do we make of today’s NAB Business Survey? Sharp falls in equity markets likely played a large role in the significant drop in business conditions in December, as did some month-to-month volatility.
  • Nevertheless, it’s a continuation of a downtrend in place for over a year.
  • It will be important to watch the strength of any bounce back in conditions in coming months, to gauge the extent to which momentum in the economy may be easing. The moderation in conditions from very elevated levels over 2018, was not sufficient to stop unemployment declining; however, continued improvements in unemployment would likely be threatened if conditions deteriorated further.
  • There are reasons for not over-reading the message of December at this stage: a few series show signs of noise or cross-industry/cross-state irregularities that warrant some caution in this regard, while seasonal adjustment has also had a significant influence, which suggests at least some bounce-back in January. Forward orders, capacity utilisation and business confidence were also relatively stable in the month, whereas they would normally, but not always confirm the decline in conditions if the economy was deteriorating rapidly.
  • The trend in conditions will be important in the outlook for the economy – and the RBA’s forecasts and policy outlook. It seems hard for the Bank to be as confident about the outlook for growth, unemployment or interest rates given recent developments in the data. Today’s survey suggests very little prospect of an interest rate rise this year and a larger risk that the next move in rates may be down, though NAB still is more inclined to a longer period of on-hold rates before an eventual move higher.
  • Prices and wages indications were again soft – suggesting little joy for the RBA on the inflation front. NAB looks for tomorrow’s headline and core CPIs to be relatively soft.


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