Business Research & Insights

Bond markets are a little feisty ahead of the FOMC meeting tomorrow. NAB’s Taylor Nugent says a hold is still expected tomorrow but there are more signs that inflation isn’t beaten yet.

NAB sees a +0.5% q/q (1.9% y/y) GDP print for Q2 2023 which will confirm the slowing in domestic demand we have seen across other indicators. Both ABS retail sales data and our own transactions data points to a flat outcome for consumption following 0.2% growth in Q1.

Hopes have been raised of a soft landing for the global economy, although a number of headwinds remain. For Australia, our forecasts for GDP growth have strengthened marginally but we continue to expect growth to be well below trend in 2023 and 2024 as the impact of rate rises flows through.

Our forecasts for the global economy are largely unchanged this month we expect growth of around 2.8% in 2023 before slowing to 2.7% in 2024. For Australia, we continue to expect quarterly GDP growth to be flat over the next three quarters, with growth of just 0.5% over 2023 and 0.9% in 2024 as the impact of rate rises flows through.

After relatively robust growth in Q1, global activity looks set to slow in the near term. For Australia, we are seeing increasing signs that activity is slowing sharply after a very strong period of growth in 2022.

Global economic data point to a bounce in growth in Q1, with China providing around 40% of this total. For Australia, we continue to expect growth to be well below trend at 0.7% and 1.2% in 2023 and 2024 respectively – though we have reverted to our previous expected rate call of a peak of around 4.1% and see a material risk that rates reach 4.35%.

We continue to anticipate a sharp slowdown in global growth in 2023, while for Australia, there are signs that consumption is plateauing ahead of a likely slowdown later in the year.

Our global forecasts are little changed this month. Also, our outlook for the Australian economy is broadly unchanged.

A range of global indicators point to a more positive start to 2023 than we had previously anticipated, leading to an upward revision to our forecasts. For Australia the economy has remained resilient but we see growth slowing sharply later in 2023 and into 2024.

Global business surveys continue to point to a weakening global economy, likely reflecting monetary policy tightening, the energy supply shock as well as COVID-19 related disruptions in China. For Australia, the recent national accounts data showed that the economy remained resilient in Q3 and labour force data continue to reflect a healthy but tight labour market.

We see a sharp slowdown in global economic growth next year. To date, the Australian economy has remained very resilient although there are some very early signs of a slowing.

Rapidly tightening monetary policy, an energy price shock in Europe and deteriorating domestic conditions in China are set to slow global economic growth to 2.3% in 2023. For Australia, we see growth slowing to well below 2% in each of the next two years, however we do not expect a major downturn.

We see global economic growth slowing in 2023. For Australia, we continue to see below trend growth over 2023 and 2024 as the impact of the lockdown rebound ends, global growth slows and higher rates and prices begin to weigh domestically.

We now forecast the global economy to expand by 3.0% in 2022 before slowing to 2.5% in 2023. For Australia, we have pulled back our near-term growth forecasts, with high frequency data showing a slowing in consumption growth. Following growth of 2.2% during 2022, we continue to see below-trend growth of 1.6% through 2023 and 1.8% through 2024.

Globally, major central banks continue to tighten monetary policy in response to the highest inflation in decades, thereby straining household finances and leading to falls in asset prices. For Australia, we have not changed our view on the underlying trajectory for the economy but see greater risk for household consumption on the back of higher rates and inflation.

Global inflation remains high and showing no signs of easing, placing pressure on household finances. For Australia, we have lowered our GDP forecast for this year and next, upped our near-term inflation outlook and incorporated a new, front loaded rate track for the RBA.

We now expect the global economy to grow by around 3.4% in 2022 and 2023. For Australia, we continue to be optimistic on the economy expecting above-trend growth this year and ongoing strength in the labour market.

The global economic outlook remains clouded by numerous factors, however, we expect that the global economy will grow by 3.7% in 2022 and then slow to a trend- like 3.5% in 2023. For Australia, GDP is expected to grow by a strong 3.4% this year – supported by healthy growth in consumption and ongoing gains in business investment.

Globally, the conflict between Russia and Ukraine has caused a significant spike in energy prices – reflecting the importance of Russia in the production and export of oil, natural gas and coal, in combination with limited additional supply elsewhere. Locally, the war in Europe poses risks on both the activity and nominal sides of the economy, uncertainty is now highly elevated – but the central-case for Australia’s economy largely remains strong.

Globally the Omicron variant of COVID-19 has spread rapidly; the sheer number of cases is disrupting economic activity as infected workers are forced to isolate. In Australia, we have revised up the expected rebound in Q4 GDP, but pulled down Q1 2022 as the spread of omicron weighs on the economy through both consumer caution as well as disruption to business.

For Australia the Q3 national accounts showed a smaller hit to activity than we had expected but we continue to see a very strong snap back in activity in Q4. Globally, advanced economy growth was robust in Q3, and a similar outcome is expected in Q4 albeit with a shift in the source of growth away from Europe towards the US and Japan.

We have trimmed our global economic forecasts this month to 5.7% for 2021, however should this occur, it would still be the strongest rate of growth since 1973. For Australia, our internal data and NAB Monthly Business Survey indicate the economy is again rebounding strongly as NSW and Vic reopen following the extended lockdowns through mid-2021.

We have revised our global economic forecasts lower – to 5.9% for 2021. For Australia, a very sharp fall in activity in Q3 is locked in however we continue to expect a solid rebound in Q4 , and strong growth continuing into early 2022.

COVID 19 remains the main risk to the global economic outlook, while in Australia the key risks to our forecasts remain the timing and pace of the easing in restrictions, and further out, the underlying pace of growth as the impact of policy measures fades.

Due to lockdowns, we expect to see a large hit to activity in Australia in Q3. Our global growth forecast for 2021 is marginally weaker this month, 6.2% compared with 6.3% previously.

Friday was all about US payrolls and the report did not disappoint. Along with solid employment gains, there were improvements in the other metrics of the US labour market edging us one step closer to a Fed tapering announcement. Market reaction to the data saw the UST curve bear steepened with the 10y UST Note testing 1.30% while the USD ended the day broadly stronger.

COVID-19 remains the most significant risk for our global outlook. While in Australia, the current virus outbreak in NSW and associated lockdowns/border closures highlights the uncertainty around economic forecasting at present.

High frequency indicators continue to point to a recovery in the global economy in early 2021. In Australia, the economic recovery continues at a brisk pace with forward indicators pointing toward ongoing strength in activity and the labour market, even as some fiscal support is wound back.

Autumn rain lifts EYCI outlook in the short-term.

Rising restrictions to combat a resurgence in the spread of COVID-19 towards the end of 2020 slowed the global recovery but did not derail it. In Australia, the economy continues to recover at a rapid pace.

COVID-19 continues to present some uncertainty around the outlook, particularly with the rollout of vaccines to emerging markets lagging that of advanced economies.

The resurgence of COVID-19 in many parts of the world towards the end of 2020, has had a negative impact on the global recovery. Whereas in Australia, economic activity continues to rebound strongly.

A range of key commodity prices rose in January.

Globally GDP rebounded strongly across all the major advanced economies in Q3, however the spread of COVID-19 remains a key risk to the outlook. In Australia our outlook now resembles the best-case scenario we outlined at the start of the pandemic, although large uncertainties remain, even with a vaccine seemingly close to being rolled out.

Markets have been buoyed by positive COVID-19 vaccine news, which could correspond with stronger economic activity and demand for commodities next year.

2020-21 on track to deliver above average winter crop.

COVID-19 remains a major factor influencing the global economy. While in Australia the RBA has lowered rates to a record low of 0.1% and announced a QE program.

October was another mixed month in commodity markets.

Trends in global commodity prices remain mixed.

Globally, after massive falls in GDP in Q2 across the advanced economies, the latest indicators are pointing to a substantial, but incomplete, Q3 rebound. In Australia, GDP fell by 7% in Q2 – the largest fall in the history of the quarterly national accounts.

At a high level, commodity prices broadly strengthened in August (with coal and gold the notable exceptions).

Growth is set to bounce back in Q3, but the recovery lost momentum through July/August.

Demand fundamentals limiting outlook for wool.

The global economy continues to recover from the impact of COVID-19. However, there is still a long way back with progress. In Australia, we have downgraded our forecasts due to the containment measures in Victoria.

Commodity markets have continued to display differing trends.

Massive fall in Q2 GDP.

The global economy is forecast to contract by 3.5% in 2020, before increasing by 6.0% in 2021, and 3.9% in 2022.

A number of commodity markets saw stronger prices in June –particularly base metals, gold and oil.

May rebound, but virus spread a risk.

2020-21 winter crop prospects strong.

Extremely large falls in Q2 GDP for many advanced and emerging economies are likely, while in Australia we expect a large fall of around 8.5% in Q2, following the 0.3% decline in Q1.

Trends across commodity markets were mixed in May.

April crash, tentative recovery in May.

We have revised down our forecasts for global GDP and now expect -3.8% in 2020, while we expect Australian GDP to fall by 8.5%.

Commodity prices generally fell in April – with particularly steep falls in oil and LNG markets, along with declines in iron ore and coal.

Q1 GDP falls as US goes into recession

The global economy is in a deep recession due to the rapid and widespread escalation in Covid-19 containment measures since mid-March. While the domestic economy is now expected to see a contraction of an unprecedented speed and magnitude.

Overall, the global economic outlook has deteriorated since last month, with the downturn expected to far exceed the Global Financial Crisis.

Insights from the Kennedy paper.

The US economy is undergoing a severe contraction.

We've significantly lowered our global growth forecasts, and in Australia growth slowed confirming a below-trend pace of growth prior to any virus impact.

Commodity markets generally remain volatile, reflecting the uncertainty presented by the Coronavirus (Covid-19) outbreak.

Risks remain amid rapid rise in cattle prices.

Fed to further cut rates at its March and April meetings.

US economy travelling well but Coronavirus clouds the outlook.

We have revised down our forecasts for global growth in 2020 to 3.0%. While in Australia we now expect a small negative for Q1 2020 growth.

Commodity prices have generally retreated in early February in response to the Coronavirus outbreak in China.

Growth likely slowed in Q4.

Dairy dynamics: prices, drought and costs impacting dairy landscape.

US-China deal reduces downside risks.

Unchanged forecasts for Australia with expected growth of 1.75% while across the globe we expect US growth to ease somewhat further and Japan’s economy is set to contract in Q4.

Economic conditions in 2020 are expected to remain unfavourable for commodity markets.

The waiting game - what's next for US-China “Phase One” trade deal?

Hopes of a US-China ‘Phase One’ trade agreement have lifted financial markets. While in Australia we've lowered our near-term forecast for growth.

NAB’s Non-Rural Commodity Price Index is forecast to fall by 7.9% quarter on quarter in Q4 2019.

US growth has slowed, but remains solid.

With growth having slowed in Q2 2019, there appears limited prospect of a turnaround in Q3 – given the relative weakness in business surveys, market expectations and the deteriorating global trade environment.

NAB’s Non-Rural Commodity Price Index is forecast to fall significantly in Q4 2019.

Economy tracking OK but trade & other headwinds will take their toll.

Global economic growth slowed further in Q2 2019. Major advanced economy (AE) GDP growth declined to its slowest pace since mid-2016.

In US dollar terms, NAB’s Non-Rural Commodity Price Index is forecast to increase by 1.8% quarter on quarter in Q3 2019.

China’s official response to President Trump’s latest round of import tariffs sent markets into a spin on Friday.

More Fed cuts likely as trade headwinds strengthen.

The latest escalation in the US-China trade war has reverberated through financial markets. The policy response will be important - we now expect two further 25bp cuts in the fed funds rate this year. China is also likely to use policy measures to offset any tariff impact, including allowing further depreciation of its currency.

The latest escalation in the US-China trade war – with the US imposing a 10% tariff on most remaining China imports – has reverberated through financial markets.

US dollar NAB’s Non-Rural Commodity Price Index is forecasted to increase by 2.1% yoy in Q3 2019, however underlying trends remain highly mixed. Higher export prices for LNG and iron ore (despite more recent spot price falls) are the key contributors, while both thermal and metallurgical coal are weaker, as are most base metals.

US economic growth slowed in Q2 2019 – will this trend continue? One implication is that the Fed will cut rates.

Indicators in major advanced economies point to a renewed easing in growth for the rest of 2019, driven largely by the US economy. Similarly in Australia, we expect growth to continue at a below trend pace over the next few years.

Global growth remains under pressure even with US-China trade dispute pause.

NAB’s Non-Rural Commodity Price Index has been on the up in recent quarters, in large part due to iron ore prices.

Horticulture exports grow to rival Australian lamb and dairy.

The Fed is close to cutting rates.

NAB’s Non-Rural Commodity Price Index is expected to increase by 0.9% quarter on quarter in Q2 2019, a little stronger than anticipated in May.

The Bigger Picture – A Global and Australian Economic Perspective – May 2019.

Trade policy turbulence continues to unsettle the global economy.

Trade risks realised.

US-China trade dispute a headwind to growth.

The Bigger Picture – A Global and Australian Economic Perspective – May 2019.

Trade worries overshadow tentative signs of activity stabilising.

Reflecting the sustained strength in iron ore prices, NAB’s Non-Rural Commodity Price Index is forecast to increase by 0.4% qoq.

In USD terms, NAB's Non-Rural Commodity Price Index is forecast to fall by 1.9% qoq in Q2 2019.

The bigger picture – A global and Australian economic perspective.

Growth slowdown continues; risks still to the downside

In USD terms, NAB’s Non-Rural Commodity Price Index is forecast to increase by 3.1% qoq in Q1 2019.

Year of the Pig brings an uncertain outlook

Global slowdown continues into early 2019

Confidence and conditions continue to ease

In USD terms, NAB’s Non-Rural Commodity Price Index is forecast to increase by 2.7% this quarter – driven almost entirely by the upturn in iron ore prices.

China’s economy continues to soften, but our outlook is unchanged.

Global Dairy Trade auction results have seen some upside since December after a fairly weak run over much of 2018.

Augmented Yield Curves in the US and Australia – what do they tell us about the growth outlook for Australia and the US?

Economic growth is likely to equal its post-GFC high in 2018.

The Bigger Picture – A Global and Australian Economic Perspective – December 2018

Initial indicators for Q4 suggest the economy continues to perform strongly towards the end of 2018.

Harvest is now underway for 2018-19 winter crop, a season which will likely go down as one of the most mixed in years.

Hands in pockets: Chinese consumers are confident but that doesn’t show up in retail sales data

The bigger picture, a global and Australian economic perspective.

US economy continued to grow strongly in Q3.

In US dollar terms, the NAB non-rural commodity price index rose marginally in Q3 2018 – increasing by 0.4% qoq. The strong upturn in the first quarter of this year contributed to a much more significant increase in year-on-year terms – up by 8.2%.

The bigger picture – a global and Australian economic perspective.

Solid headline growth masks divergent trends.

China’s consumers aren’t ready to drive the economy’s growth.

The bigger picture - a global and Australian economic perspective.

China’s trade relationship with the European Union.

Global growth appears to have remained above average through the first half of 2018, but with our leading indicator pointing to a moderation in coming quarters, we think that this will represent the peak for this cycle.

The US-China trade dispute dominated AUD/USD movements in July.

The US economy grew strongly in Q2 2018, driven by a rebound in consumption and further solid business investment growth.

The global economy remains in reasonable shape right now despite some pressures on Emerging Market economies.

Risk to world growth from trade tensions escalating.

NAB’s USD non-rural commodity price index declined by over 3% q/q in Q2 2018. This only partially reversed the large gain made in the previous quarter and, as a result, it is still 7.5% higher than a year ago. The fall in Q2 mainly reflected a decline in iron ore and metallurgical coal prices, although LNG export prices – linked to the price of oil – rose.

Economy off to a strong start early in 2018

My ‘whys’ haven’t changed over 25 years at NAB. I’m still driven by the impact economics has on our lives and the importance of delivering independent analysis that helps people and institutions make better decisions.

Australians rate restaurants, movies and travel as the most positive experiences their money can buy, according to new research from NAB.

2018 has been exceptionally dry across much of Australia, with knock-on downside to restocker interest and young cattle prices.

Can China maintain its stable growth profile as trade tensions increase?

Still see growth momentum improving.

Stability in financial markets over 2017 and early 2018 came to abrupt end in recent weeks, with a surge in market volatility and big falls in equity markets and prices for many commodities.

In understanding the drivers of the rise in AUD/USD from 0.75 in early December to above 0.81 in January, higher commodity prices have justified much of the move.

China’s official data may underestimate the strength of growth in 2017.

Steve Killelea, the man behind the Global Peace Index, explains its potential value in helping make investment decisions.

2017 was marked by a return to stability following the volatility of recent times and the rise of innovative new products, especially in the green and social sectors.

Uneven flows – how distortions in China’s data paint a very different picture of global trade.

2017 has proved to be another year of solid US economic growth and more of the same is expected in 2018, helped along by fiscal stimulus.

A good year for the world economy as growth rises above trend.

The Indian economy accelerated in the September quarter, recording a 6.3% yoy expansion.

Australia’s GDP continues to grow in spite of subdued wages growth and consumer spending. Gaining a greater understanding of how these contradictory trends break down across regional and metropolitan areas, as well as consumer spending categories, is behind NAB’s expansion of its Consumer Spending and Cashless Retail analyses.

The connection of Eastern Australia to global LNG markets has seen domestic prices face a wild year.

The Australian beef cattle industry has enjoyed a great run over the past couple of years, with the Eastern Young Cattle Indicator (EYCI) hitting a record over 720c/kg in September last year.

The read on business conditions was extremely strong in the October NAB Monthly Business Survey, with manufacturing posting a strong result despite the recent closure of auto manufacturing plants. The conditions index jumped to a record high, and while confidence is not quite as buoyant, it is holding above long-run average levels.

Advanced economies to drive lift to above trend global growth.

Watching the labour market and wages.

Indicators point to marginally softer conditions post China’s leadership change

There were very few consistent themes across the commodity complex this quarter.

Changing of the guard - what does China’s new leadership mean for its economy?

Another strong quarter of growth.

The Indian economy has slowed considerably since the first half of 2016.

China’s stable growth continued in Q3, but supported by another credit binge.

For Australia, outcomes in the September NAB Monthly Business Survey were generally upbeat. Business conditions remain rock steady at levels close to their multi-year highs, but business confidence rose only modestly after a big fall last month.

Global growth rising toward trend pace as advanced economies lift.

Repurposing an old tool – a new life for the Required Reserve Ratio.

The effects of the recent major Hurricanes affecting the US are clearly evident in some of the economic data.

China’s old economy surprises on the downside, may point to weaker Q3 growth.

Tightening the purse strings – China’s foreign investment is slowing in a more closely regulated environment.

All eyes on China’s steel sector.

In Australia, the August NAB Monthly Business Survey showed some mixed results, but is still encouraging overall.

Global growth lifts in mid-2017, heading back towards trend rate as pace of advanced economy output expansion picks up.

Increasing household wealth (due to rising equity and house prices), as well as a high level of consumer confidence, remain tailwinds for consumer spending.

The Indian economy decelerated in the June quarter, growing by 5.7% yoy, the lowest since March 2014.

Waiting to see if goals on tax and trade can make up for failure on health reform

After a sluggish start to the year, GDP growth rebounded in the June quarter and the labour market continues to tighten.

Chinese data generally weaker in July, returning to trend after strong June

Unwinding road ahead – weaker Chinese producer prices providing headwinds for advanced economy inflation

Global growth heading back toward trend after soft first quarter.

Old King Coal – coal still a big part of China’s energy mix but its role is on the wane

Steady as she goes – economic growth and other key indicators stable in Q2.

Following a slow start to the year, GDP growth looks to have accelerated in the June quarter.

Gold began 2017 strongly, up 8% in the first half - despite falling 2% in June. This weakness has continued into early July, with the strong US payrolls data exerting further weakness on gold. However, gold received some support following Fed Chair Janet Yellen’s semi-annual testimony, which the markets interpreted as somewhat dovish.

Global upturn remains in place despite the risks.

Inflation has slowed recently even allowing for ‘one-offs’.

Indian economic growth decelerated in the March 2017 quarter, with real GDP expanding by 6.1% in yoy terms.

Global upturn remains in place although momentum stalled in early 2017

Trends stable across the board, no sign of a major economic slowdown.

Production growth to decline or slow in 2017 and 2018.

After a slow start to the year, early indications for June quarter GDP are pointing to an acceleration in growth.

Belt and Road Initiative – can the reality of the program meet China’s grand ambitions?

A slow start to the year…again.

Key indicators a little softer in April, pointing to easing economic growth in Q2.

Economy regained its footing over 2016 GDP. It grew in each quarter in 2016… the first year this has occurred in since 2005.

No FTA yet, but deepening trade prospects.

China’s income inequality improving but still some long term challenges.

An improving US-China relationship provides a better environment for China’s economy.

In March, the NAB Monthly Business Survey results pointed to an overall healthy economy that is gaining momentum, at least in the near-term.

Geo-political risks fail to dent global reflation...for now.

Geopolitics took a backseat today with Trump’s Wall Street Journal interview dominating market moves.

The global macro picture has been muddied by a rise in geopolitical tensions, economic data releases overnight have been largely ignored and safe haven assets have outperformed.

Prime Minister Turnbull visits India after important economic reforms.

Investment indicators looking better

Head of Asia Business Development, NAB Business & Private Bank, Laura Mattiazzi recently hosted a roundtable discussion at the Global Food Forum addressing the challenges and opportunities facing cropping industries - and how Australian businesses can compete globally.

Rise of the machines: could automation help sustain China’s long term growth momentum.

More Chinese tourists are starting to prefer free independent travel over group tours, according to data from Tourism Australia.

Jobs growth, business surveys and consumer sentiment all point to an economy in good shape.

In February, the NAB Monthly Business Survey moderated from the surprising strength seen in January, but remained consistent with a relatively robust view of business activity and investment behaviour in the near-term.

Global reflation continues, political risks to navigate

An encouraging start to 2017 – although strength still comes from the old economy, with retail trends disappointing.

Foreign multinationals suggest quite good expectations for capital investment in the next 12 months

Business survey suggests solid near-term activity, despite easing from multi-year high.

Prices have seen a gradual recovery from the mid-2014 to early 2016 price slide.

Financial markets rallied strongly shortly after it was clear Donald Trump would be the next President. This was evident across stock, currency and bond markets, and there was also a decline in credit spreads.

Change to fed rate call - March hike now expected.

Likely outcome is that the Euro-zone survives.

The International Monetary Fund expects India to retain and strengthen its recently acquired tag of being the fastest growing economy in the world.

Strong European data failed to excite markets – the exception being equities – as the upcoming French Presidential elections take centre stage. Betting markets now ascribe Eurosceptic Le Pen a 34.2% chance of winning, while a poll by Elable for L’Express magazine overnight puts her within striking distance in a run-off with Fillion with 44% of the vote – inspiration for today’s title “Livin’ on a Prayer” by Bon Jovi.

For the 2016-17 season, we developed a new wheat production forecast model, based on regional rainfall and state yields going back to federation, with an allowance for technological change.

With the US out celebrating president’s day, Europe was always going to be the focus in the overnight session. My dad used to listen to Santana, so the first song that came to mind was “Europa”, a mellow song with no lyrics, but notable for Santana’s guitar solo.

One feature of Australia’s recent employment growth has been the subdued pace of full-time job creation at a time when part-time employment has grown strongly

Just over a week ago, President Trump promised a ‘phenomenal’ tax announcement in 2-3 weeks, so as the clock ticks down to some form of announcement, market inertia is set to reign.

Business surveys and measures tracking the volume of activity suggest that the global economic upturn lifted a notch toward the end of last year and that trend seems to have continued into early 2017.

Don’t be alarmed. It’s not that markets have spat the dummy, but rather US equity markets are down, having opened high, with bond yields also lower. In the currency space the USD has been softer, Euro, Sterling and the CHF stronger. The Aussie has been steady-to-lower, though hugging 0.77, supported by the soggy big buck.

Brighter signs suggest moderate global reflation continues

My colleague Rodrigo Catril warned yesterday of the possibility of a US Fed March rate hike – what he termed the Ides of March. That argument gained further currency overnight with the US CPI and core‑Retail Sales printing double the market consensus.

Reaction to Fed Chair Yellen’s semi-annual testimony before the senate triggered a sell-off in US Treasury yields and a broad USD rally as she left the door open for a rate hike as soon as the next FOMC meeting in March.

The RBI, somewhat surprisingly, maintained the policy repo rate at 6.25%. Uncertainty about the effects of demonetisation and sticky core inflation were factors.

The strength witnessed in last month’s NAB Monthly Business Survey continued into January, with both business conditions and confidence jumping to much higher levels.

The message in American band Daughtry’s 2011 song later covered (with aplomb) by the Arctic Monkeys is, according to the writer, “Your significant other is in the right and just like she said it would happen, you come crawling back”

Last week the USD regained its mojo largely thanks to President Trump's hint of a phenomenal tax policy announcement and on Friday the USD waivered, particularly against JPY when at a joint press conference with Japan’s PM Abe, President Trump responded to a question about currency devaluation saying that "we will all eventually...be at a level playing field." and then added "That's the only way you can fairly compete in trade”.

The US economy continues along the same moderate growth path it has experienced in its recovery from the Global Financial Crisis.

From a political perspective, President Trump’s decision to withdraw from the TPP reflected US sentiment against globalisation, particularly in the mid-west rust belt.

The Trump-trade was reignited overnight on the back of the President flagging an impending “phenomenal” tax announcement.

It’s been a rather listless overnight session as the US earnings season is drawing to a close with one of the best quarters of growth for quite some quarters. But that, and the tantalising prospect that corporate tax reductions and deregulation from the Trump Administration, and hopes of better growth, seems to be priced in.

In what has been a quiet night of data releases and tweets from President Trump, the USD has been the quiet achiever amid simmering political and fiscal uncertainties in Europe, softer oil prices, flat US equities and lower US Treasury yields.

It’s been something of a risk off session to open the week. There’s been a focus on the upcoming French Presidential elections, ECB President Draghi has been batting back criticism from across the Atlantic on currency manipulation (regretting nothing), US markets fretting about the extent of timing of Trump reflation, not to mention ongoing tweets.

Fed pressure index signalling upside risks for US inflation and interest rates?

A bit of early 19th century opera to kick off the week (don’t fret, I’m sure we’ll be back in rock & roll mode for the rest of the week).

The supposedly “lively” conversation that President Trump and PM Turnbull had yesterday over the Australia-US refugee deal has gotten quite a deal of not just Australian press but international press coverage overnight.

The major event overnight was the US FOMC meeting where rates were left on hold as expected. There were very few changes to the post meeting statement with the Fed playing a straight bat. Markets were somewhat disappointed with Treasury yields and the US dollar reversing earlier gains that had occurred following stronger than expected US economic data.

More unwinding of the Trump lower taxes/higher infrastructure spending US$ reflation trade has again been the order of the day. The Bloomberg spot USD dollar index is down by ¾% as markets again sell the big buck, reacting to the latest statements from the new Administration, selling kicking off earlier in the session with some safe-haven buying of JPY and CHF in response to the immigration policies.

Australia’s service sector already accounts for 70% of our GDP and shows no sign of slowing its growth. That means it’s never been more important to understand the where, what and how of Australia’s most important economic driver. NAB crunches the numbers for you.

Business confidence has held up quite well and is remarkably steady given the context of major uncertainties both at home and abroad. That said, the level of confidence has not picked up to reflect the overall strength in business conditions seen over the past year or more.

New Order’s Blue Monday is the best-selling 12 inch single of all time in Britain (mmm I wonder how many 12 inch singles are out there!) and is also the longest charting single at 7:25.

While we are receiving many questions about the impact of President Trump’s policies on the outlook for the US and global economies and markets, the most frequent question we are being asked about Australia is “why is NAB forecasting two interest rate cuts in 2017” (in May and August)?

We expect growth to face some headwinds in coming quarters but to strengthen later in the year and into the next, assuming the President delivers a fiscal stimulus to the economy

A glance at Friday’s New York opening and closing levels for major FX rates tells us that the latest flurry of US data, including a slightly softer than expected Q4 GDP print and downside miss on headline durable goods orders, came and went without much fanfare. US yields dropped on the 1.9% headline GDP print while currencies and stocks did very little.

Sydney music producer Flume claimed the top spot in Triple Js 2016 Hottest 100 yesterday, but many will consider the moral victor to have been Melbournian busker Tash Sultana for her brilliant ‘Jungle’.

Today’s 1994 classic Hot Potato by The Wiggles is likely to be seared into the memory banks of parents and children alike – likewise for your scribe. A staple the humble spud may be, but possibly an expensive one in the 4th quarter according to our economists.

Economic reports have been scant overnight. Trump, trade, executive orders and a White House press briefing have provided wire feedstock for news and trade into Asia trade today.

Apartment construction which has risen strongly over the past few years was reported by the Statistician to have declined in the September quarter.

China records a comparatively strong finish to 2016, but Trump trade uncertainty adds downside risk to our moderate easing forecast for 2017.

Re-building the US industrial base, aiming to “massively increase jobs, wages, incomes and opportunities for the people of our country” is the principal economic objective of the Trump Presidency.

In a defiant and brief speech, President Trump made it clear that from now on “It's going to be only America first” and in what has now become a great economic debate he reiterated his view that “Protection will lead to great prosperity and strength”. Against this view, history and economic theory tells us that protectionism usually involves an increase in tariffs and a decline in trade.

The key views of NAB and BNZ's economists and strategists

Markets continue to digest Yellen’s speech yesterday which was seen as mildly more hawkish and positive US economic data overnight played into that view. The ECB also met last night with Draghi coming off as slightly dovish, playing down the recent uptick in inflation and remaining committed to the asset purchase program.

It’s been a reversal back to USD strength overnight – including a late session kick along from the Fed Chair, more on that below - the Bloomberg spot dollar index up 0.35% before she stepped up to the plate, and another ½% since.

Never underestimate the ability of markets to discount the same news twice. Or in the case of the US dollar, the ability to ignore a relevant piece of news one day only to react with alarm to it a day or two later.

While prices are likely to stay subdued for some time, increased volume will see the value of exports increase significantly.