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Tighter labour market will eventually lift wages The end of the JobKeeper wage subsidy resulted in a modest fall in employment in April. But a renewed drop in the participation rate meant that the unemployment rate declined from an upward revised 5.7% to …
21st May 2021
The release of the federal Budget on Tuesday took centre stage this week. (See our Update .) But the more striking development was the surge in the price of iron ore to a record high of nearly US$240 per tonne. (See Chart 1.) Chart 1: Iron Ore & LNG …
14th May 2021
RBA signals more support is required The Reserve Bank of Australia noted at this week’s policy meeting that it will decide whether to extend its bond purchases at its July meeting. And Deputy Governor Debelle noted yesterday that the decision will take …
7th May 2021
Surge in headline inflation won’t last Consumer prices rose 0.6% q/q in Australia in Q1, well below the Bloomberg median forecast of a 0.9% q/q rise. And half of that rise was due to stronger fuel prices which meant that underlying inflation was subdued. …
30th April 2021
Consumption probably kept rising across Q1 The 1.4% m/m rise in retail sales values in March largely reflected the unwinding of lockdowns in Victoria and Western Australia. The bigger picture is that sales remained below their peak in November. Car …
23rd April 2021
Households in a good position The RBA’s latest Financial Stability Review painted a rosy picture of financial stability risks. Household debt as a share of disposable income remained at a four-year low in Q4 despite the fall in incomes as stimulus was …
16th April 2021
Travel bubble launch New Zealand’s government this week confirmed that a travel bubble with Australia will begin on 19 th April. As we previously discussed, the impact on GDP is likely to be small for both countries as the boost from increased spending in …
9th April 2021
Passing the buck House prices are surging in Australia. Prices rose 2.8% in March which translates to an incredible annualised pace of more than 30%. Housing finance commitments in February also point to annual price growth reaching 30% before long. (See …
1st April 2021
More moves to slow house price growth We’ve expressed doubts over the ability of the RBNZ’s loan-to-value ratio (LVR) limits which were implemented at the start of the month to slow the pace of house price growth very much. (See here .) The government …
26th March 2021
Sharp fall in unemployment Australian employment surged in February despite brief localised lockdowns in some states. The 88,700 rise was enough to pull down the unemployment rate from 6.4% to 5.8%. That’s just 0.6 ppts higher than the pre-virus level and …
19th March 2021
RBA defends yield target The sell-off in government bond markets in recent weeks resulted in a deterioration in liquidity conditions, with bid-ask spreads reaching the highest level since last year’s panic. (See Chart 1.) The Bank responded last Monday by …
12th March 2021
RBA responding half-heartedly to soaring yields Bond yields declined at the beginning of the week as the RBA on Monday stepped up its purchases of longer-dated bonds for the first time since the launch of quantitative easing in November. The Bank bought …
5th March 2021
Bond yields soaring to two-year high The key market theme this month has been the surge in long-term government bond yields. While that rise is partly driven by worries that another large stimulus package in the US will lift inflation, yields have risen …
26th February 2021
Short lockdowns unlikely to disrupt recovery Brief, localised lockdowns are increasingly becoming the norm in Australia and New Zealand as officials seek to contain outbreaks, particularly given concerns about more infectious strains of the virus. But the …
19th February 2021
RBNZ cracks down on the housing market In April 2020, the RBNZ removed its existing LVR restrictions for housing loans which stipulated that banks could not lend more than 80% of loans to owner-occupiers with loan-to-value (LTV) ratios above 80% and no …
11th February 2021
RBNZ tightening looking more likely Just three weeks ago we unveiled our non-consensus forecast that the Reserve Bank of New Zealand would begin raising rates in 2022. Since then a string of positive data releases has confirmed our view that the economy …
5th February 2021
Inflation set to rise further The 0.9% q/q rise in consumer prices in Q4 was much stronger than the RBA’s forecast of 0.5% q/q. That said, the pick-up in annual inflation was entirely driven by administered goods as child-care subsidies and a freeze in …
29th January 2021
Risks from JobKeeper phase out keep diminishing Even though the participation rate hit a fresh record-high, Australia’s unemployment rate fell to 6.6% in December. Across the fourth quarter, the unemployment rate has averaged 6.8%, far below the RBA’s …
22nd January 2021
Australia has to rely on less effective vaccines We argued last week that Australia may vaccinate all vulnerable people by May, allowing most restrictions on activity to be relaxed. Indeed, Australia has ordered sufficient vaccine doses to inoculate its …
15th January 2021
Vaccine rollout to begin slightly earlier This week Prime Minister Scott Morrison revealed that the vaccine rollout may be brought forward to mid to late February. Mr Morrison said he hoped the Pfizer/BioNTech vaccine would be approved by the end of …
8th January 2021
Coal the latest victim of trade war with China Chinese steel mills and power plants were told to stop importing Australian coal at the start of October. More recently, China has relaxed coal import quotas for major power plants due to domestic supply …
18th December 2020
Credit rating downgrade unlikely to lift bond yields S&P Global Ratings downgraded the credit ratings of New South Wales and Victoria this week from AAA to AA+ and AA respectively. Both states have held the prestigious AAA rating since 2003 and entered …
11th December 2020
Consumption set to rebound further The 3.3% q/q rebound in Q3 GDP was stronger than most had expected. The 7.9% q/q rise in consumption reversed half of the drop in Q3, but some sectors are still on their knees. For example, spending on accommodation …
4th December 2020
House prices ready to skyrocket Daily data from CoreLogic suggest house prices in Australia’s five largest capital cities have risen 0.9% from their trough in October. And leading indicators suggest prices may soar before long. Indeed, our sales to new …
27th November 2020
RCEP won’t cool trade tensions Australia was one of 15 countries, including China, to sign the Regional Comprehensive Economic Partnership (RCEP) this week. Some analysts have expressed optimism that the signing of the deal would help cool the rising …
20th November 2020
Output won’t return to pre-virus trend The US elections sent the ASX 200 to fresh highs last week as the prospect of a divided US government means that several measures proposed by president-elect Joe Biden are off the table . And it has risen further …
12th November 2020
China tensions continue to bubble Trade data this week suggest that trade was a big drag on Australia’s GDP growth in Q3, though that’s largely because the rebound in domestic demand lifted imports. And despite mounting trade tensions with China, exports …
6th November 2020
Inflation holding up better than expected The 1.6% q/q jump in consumer prices in Q3 was largely due to the reversal of the government’s free childcare policy and on its own tells us very little about the broader inflation picture. More importantly, …
30th October 2020
Minutes reiterate dovish message The minutes of the RBA’s meeting on 6 th October largely sent the same message as Governor Lowe’s speech a week alter. However, there are two points worth highlighting. First, the Board discussed lowering the targets for …
23rd October 2020
RBA doubles down on inflation commitment RBA Governor Phillip Lowe gave a speech this week outlining how the Bank can deliver more easing. One change he unveiled was to the RBA’s forward guidance. In recent meetings, the Bank has said that it won’t raise …
16th October 2020
Big budget spend up Josh Frydenberg unveiled the 2020/21 Budget on Tuesday announcing nearly $100bn of additional stimulus measures. Of particular note, the Budget brought forward stage 2 of the tax cuts to June 2020 (to be back-dated), introduced a 100% …
9th October 2020
China’s recovery boosting Australian fortunes In his note last week our chief economist Neil Shearing explained why the recovery in China has not boosted growth in many other economies. However, Australia is one of the few countries that has benefitted. …
2nd October 2020
Better than expected in Victoria Recent data show that the draconian lockdown in Victoria that forced all non-essential business to shut at the start of August had a much smaller impact on activity than we had anticipated. We learnt last week that hours …
25th September 2020
NZ economy should rebound quickly Production GDP in New Zealand fell by 12.2% q/q in Q2 due to the strict lockdown which restricted most activity in April. That compares to the smaller 7.0% fall in GDP in Australia. That makes sense given that the initial …
18th September 2020
Melbourne lockdown extended Victorian Premier Daniel Andrews confirmed this week that the state would remain in the current lockdown until at least the end of September, in line with our own expectations. (See here .) But the path out of lockdown he …
11th September 2020
Pandemic decimating some services sectors The 7.0% q/q plunge in Q2 GDP was larger than we had anticipated and meant that Australia entered its first recession in 29 years. And while we’ve pencilled in a 0.5% q/q rise in Q3, the risks to that forecast are …
4th September 2020
Consumption & investment holding up Recent data suggest that activity has held up better than many had anticipated. For one thing, retail sales values rose by another 3.3% m/m in July, leaving them an astonishing 11% above pre-virus levels. And in …
28th August 2020
Australian wine in China’s firing line China has launched an anti-dumping investigation into the Australian wine industry which could impose costly tariffs on Australian wine. This is not the first incident of trade tension with China this year. In May …
21st August 2020
Falls in employment ahead Official labour market statistics for July showed Australian employment rose a further 0.9% m/m to be up 2.8% from its trough in May. Even so, the 0.6ppt rise in the participation rate means that the unemployment rate edged up to …
14th August 2020
Recovery slowing to a crawl The state of Victoria entered a severe lockdown on Thursday, with most non-essential businesses now shut. As we outline here , this should push activity in Victoria around 20% below normal levels until September and means we …
7th August 2020
Employment starting to fall again Weekly payroll data released this week suggest that the recovery in employment has gone into reverse. Between the reference period of the June labour force survey and 11 th July the number of jobs has fallen by 0.5%. …
30th July 2020
Consumption still needs support We learned this week that retail sales in June rose by 2.4%, leaving them up 6.8% on their pre-virus levels. That likely reflects some switching from services which were not available during the lockdown towards goods which …
24th July 2020
Net debt to rise to 60% of GDP The government is set to release a Budget update next Thursday ahead of the regular Budget on 6 th October. That will incorporate the sharp deterioration seen in the monthly financial accounts. In May the government racked …
17th July 2020
Melbourne back in lockdown Melbourne returned into lockdown on Wednesday night as the number of new coronavirus cases hit a record high. (See Chart 1.) Residents are only allowed to leave their house for essential shopping, work and exercise and face a …
9th July 2020
New virus outbreak in Melbourne The economy bounced back strongly after the end of the lockdown as retail sales surged nearly 17% m/m in May and sales in the majority of categories was above pre-virus levels. (See here .) Admittedly, imports of consumer …
3rd July 2020
Almost all restrictions lifted in New Zealand New Zealand has almost entirely eliminated Covid-19 and has removed all domestic restrictions on activity. There have been a handful of cases among returning citizens at quarantine facilities at the border but …
26th June 2020
Unemployment rate may have peaked Employment fell a further 1.8% in May following the 4.7% decline in April, though we suspect that some of that decline reflects the delayed impact of people being stood down in April rather than fresh job losses. After …
19th June 2020
Consumer confidence picks up As the lockdown in Australia has lifted, so too has economic sentiment which should help support the rebound in activity. Indeed, the pick-up in consumer confidence since the lockdown has been eased shows a sharp turn in the …
12th June 2020
Budget Update delayed to reassess JobKeeper Josh Frydenberg has confirmed that the Budget Update due in June will be delayed so that the government has time to reassess the JobKeeper scheme. For what it’s worth, our assessment of the outlook for the …
5th June 2020
Slump in revenue will widen budget shortfall The Treasury last week discovered that many of the firms applying for its JobKeeper wage subsidy had filled out the application form wrongly. As a result, the Treasury now estimates that only 3.5mn workers …
29th May 2020