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Australia - AIG Manufacturing PMI for September: 49.8 (prior 46.9)




Australian Industry Group Performance of Manufacturing index

Comes in at 49.8
  • prior was 46.9, down 9.5 points on the month and the biggest drop ever for this survey
Some key points from AiG:
  • The stabilisation in the Australian PMI in September was heavily influenced by activity in the food & beverages sub-sector which recovered after contracting in August. This key sector (now contributing around 28% of all manufacturing output) appears to have addressed the factors that drove a contraction in production and sales in August
  • Three of the seven activity sub-indexes expanded in September after contracting in August. Production (52.6 points), deliveries (56.4 points) and sales (51.4 points) expanded and exports stabilised (50.0 points). Employment (46.7 points) and stocks (44.3 points) contracted again. New orders slipped into contraction (48.3 points).
  • Five of the eight manufacturing sub-sectors expanded in September (three month moving averages), including printing & recorded media (62.8 points), petroleum & chemical products (52.7 points), metal products (51.3 points), food & beverages (52.8 points) and machinery & equipment (52.8 points).
  • Comments from manufacturers in September indicate a steady improvement in demand and exports in some sectors after last month's dip
  • Variability in the exchange rate and persisting oversupply in some markets is curbing activity
  • Margin pressures appear to be intensifying due to ongoing high input costs (particularly for imported inputs and energy)
  • Lower government orders, the sharp fall-off in mining construction work and the completion of major infrastructure projects (with no imminent replacement projects in the pipeline) and wet weather in some locations has also dampened activity

Australia - ANZ-Roy Morgan Consumer Confidence: 117.9 (prior 120.6)


Weekly consumer sentiment data from Australia

  • A volatile data point this one, after last week's big jump a bit of a dip this week
  • Above its long run average (see the pic, below - the dotted near horizontal line around 112.8)
  • The 4 week moving average is also above the long run average

RBA Rate Decision: Reserve Bank Holds Interest Rate at 1.5% for Second Straight Month


The Reserve Bank of Australia (RBA) kept monetary policy unchanged Tuesday, as officials awaited new evidence of inflation and economic growth.

The RBA held the overnight interest rate at 1.5%, unchanged from the previous month and in line with the consensus estimate. The central bank slashed rates by 25 basis points in August, its second easing campaign of the year.

“Inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” the RBA said in a statement.

“Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.”

A private measure of inflation released on Monday showed stronger price growth in September. The TD Securities-Melbourne Institute consumer inflation index increased by 0.4% and was up 1.3% over year-ago levels.

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Australia August retail sales +0.4% m/m (expected +0.2%)


A much better performance from Australian retail sales

August up 0.4% m/m
  • against an expected up 0.2%
  • And well above July's 0.0% (flat) m/m
The retail sales data has been a poor performer in recent months. The August beat is thus welcome, but it comes after many months of disappointment.

Initial analysis cites:
  • Retail sales supported by solid growth in employment
  • Low interest rates
  • Consumer confidence improving
  • Weighed on by low wages though
--
More from the Australian Bureau of Statistics:
  • The trend estimate for Australian retail turnover rose 0.1 per cent in August 2016 following a 0.1 per cent rise in July 2016
  • Compared to August 2015 the trend estimate rose 2.6 per cent

Australia housing market - 50 'high risk' areas


The Australian Financial Review report on CEO of the National Australia Bank's appearance in parliament

  • Says there are 50 "high risk" postcodes in Australia
  • Mainly focused in the mining towns of Queensland and Western Australia & the inner-city apartment markets of Sydney and Melbourne
  • Says NAB is keeping a conservative loan book - average loan to value ratio of 44%, only a "couple" of areas having LVRs of 90 per cent
  • Says the bank wary of an oversupply of apartments in inner Melbourne and Sydney & had tightened the bank's lending criteria to borrowers in those areas

AUD/USD forecast for the week of October 10, 2016


The AUD/USD pair initially tried to rally during the course of the week, but then turn right back around to reach down towards the 0.75 level. I believe this area should be supportive though, so I don’t have any interest in shorting at this point in time. However, I would start selling if we broke down below the 0.74 level, as it would show a real break down of significant support. I have no interest in buying this market at the moment, so therefore I’m not even looking for the trade.


AUD/USD Weekly Forecast October 10-14


AUD/USD turned lower this week after notable gains in the prior two weeks. Broad-based strength in the Greenback triggered a turn lower on Tuesday, while a technical break on Wednesday has activated a head and shoulders pattern seen on a 4-hour chart. The RBA left rates unchanged this week, and labor data out of the United States was reported softer than expected.

The Reserve Bank of Australia left rates at 1.50% at their meeting this week and was seen moving towards a more neutral stance in their monetary policy statement. The central bank remains in a cycle of easing, having cut rates at their May and August meetings, but has been taking a more optimistic view of the economy over the past two meetings. A poor CPI reading in April had triggered the current rate cut cycle, and the bank is becoming increasingly accepting of a low inflation environment, stating that subdued inflation levels have been impacting economies across the globe. The bank referenced the rise in commodity prices, but a sharp decline in precious metals this week stands to impact their viewpoint at the next meeting. Concerns over house price inflation have further subsided with a recently changed method of calculating house prices indicating that measures in lending standards have attributed to a cooling of the housing markets. The central bank did not express any concerns over the exchange rate but included the standard clause, seen in the statement throughout the year, that a further appreciation could complicate things.

Non-farm employment out of the United States was reported to increase 154,000 against analyst expectations for an increase of 171,000 in September. August figures were revised up to 167,000 from 151,000, the unemployment rate ticked up to 5.0% from the prior 4.9%, and average hourly earnings edged up to 0.2% from the previous month’s reading of 0.1%.

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S&P's "startling warning" on Australian debt


Standard & Poor's says Australia's foreign debt has hit "extreme" levels that match the worst in the world

Comments from John Chambers, the chairman of the firm's sovereign ­ratings committee
  • "The government will point out that its fiscal position is strong - but it's not quite as strong as it used to be"
  • "Australia would have one of the weakest external positions of the 130 sovereigns that we rate."
The Aussie press reporting.

Australia data - Sept business confidence 6 (prior 6) & conditions 8 (prior 7)


National Australia Bank Business Survey for September

  • prior 7
Business Confidence unchanged at 6
  • prior 6

  • Sales and profits rebounded (Sales index at +17, from 13 last month)
  • Good size jump in forward orders (up 6 points to +8)
  • Profitability at 7, up from 4 the previous month
  • exports at 2, up from 1 prior
('forward' orders ... huh ... they'd hardly be backward now would they?)

  • Employment fell 3 points to +1
  • Capex up to +8

Comments from NAB economics
  • Outcome suggests good near-term prospects for activity
  • Solid business conditions
  • Notes that strength in business conditions has become more narrow based in recent months
  • Services have outperformed
  • Retail sector lower
  • Suggests a multi-speed economy, but one where most key non-mining sectors are performing well in the near-term
  • However, weakening retail conditions are a significant risk to our outlook, especially considering that consumption accounts for more than 50 percent of Australian GDP

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National Australia Bank conducts a monthly survey of more than 500 firms

Australia - Westpac's consumer confidence index (October): +1.1% m/m (prior +0.3%)

Consumer sentiment survey from Australian bank Westpac

A big jump to 102.4 (from 101.4 the previous month).
Up 1.1% on the month (prior month was +0.3% gain)
 
            WPAC commentary (in brief):
  • This result extends a remarkable run of stability in the Index
  • This stability is signalling a sustained lift in Consumer Sentiment over the last year. The average level of the Index over this last stable six months is now 4.9% higher than the average of the same six months a year ago.
  • The "Current Conditions components of the Index have been steady while the Expectations components of the Index are up 8.1% on the previous year.
  • This boost to expectations has been sustained.
  • The only disappointing aspect of this story is that the component of the Index which measures how respondents feel about their own finances relative to a year ago has fallen by 2.9% (on a six month average basis) whereas the component that tracks their outlook for finances over the next 12 months has lifted by 2.2%.
  • The largest average boost of the components has been the outlook for the economy over the next 12 months which has lifted by 13.1% on a year ago (on a six month average basis).
  • Ongoing stability in the labour market has been one likely explanation for the overall boost to confidence.
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