This week’s GDP numbers will, as usual, be spun in a couple of ways.
Put another way, September quarter growth this year would have to come in at 0.2 per cent or worse for things to slow further – and even the grizzliest bear hasn’t forecast that.
Those staring at a half-empty glass will likely see not only more of the same, but any semblance of growth steadily draining away.
From what the Australian Bureau of Statistics has published so far, retail trade volumes will be a drag, private sector capex too – particularly given the surprise fall in machinery and equipment investment – and dwelling investment will also chip away at the bottom-line GDP figure.
Net exports will offset the falls to some extent, as will government spending – although that impact is diminishing – and quite possibly an inventory build-up will help too.
However, mounting inventories are not necessarily considered “quality” growth.
Growth is slowing
NAB’s forecast is a slightly below consensus 0.3 per cent over the quarter, or 1.5 per cent year on year.
On that basis, whatever growth there is can be largely attributed to an expanding population, growing at 1.6 per cent.
NAB chief economist Alan Oster says there is likely to be a marginal slowing from the growth rates seen in the past two quarters and a continuation of the weakness seen over the past year.
“Our view is that consumption growth is unlikely to see a significant recovery given the constraints of low income growth and high debt levels,” Mr Oster said.
Mr Oster points out the weakness in domestic demand continues to be a household story, with consumption growth remaining weak – retail volumes are plumbing the depths last seen in the early ’90s recession – and the decline in dwelling investment is ongoing, despite a recent pick up in house prices.
We remain less optimistic than the RBA that growth will return to trend and that there will be an improvement in the unemployment rate.’’
The latest RBA forecasts imply GDP growth should be around a solid 0.6 to 0.7 per cent over the quarter if it is to meet its expectations that “economy is at a gentle turning point”. That’s unlikely.
It is perhaps the RBA’s optimistic forecasts, rather than the economy, that are closer to a turning point.
Rates on hold
A really dire GDP figure won’t affect the RBA’s decision at Tuesday’s board meeting, given, as usual, the quarterly National Accounts are published the day after a rate-setting meeting.
Playing slightly behind the beat may be clever in jazz, but it is more difficult to comprehend in monetary policy.
The market has priced in only a 10 per cent chance of a cut on Tuesday.
As the board’s last set of minutes noted, given it had already delivered “substantial monetary stimulus (three cuts in recent months) … there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags”.
ANZ’s David Plank said there’s no reason to think the RBA has changed its mind over the past four weeks.
“October employment data were weak and the private capex, in terms of both the Q3 result and forward expectations, disappointing, but the lag between policy and impact supports the case for waiting until the RBA updates its forecasts in February.
“Also there has been no additional data on household spending since the November meeting and there won’t be until after the December meeting.”
Don’t tell the ASX the economy has stalled
While the economy is flatlining, the same cannot be said for the equity market, with the ASX continuing what has been a sneaky three-month rally.
Sure, retail may be withering away – another big fashion chain, Bardot, went into administration last week – business and consumer confidence hardly robust, the banks still seem to harbour capital-destroying secrets and the potential resumption of a trade war hardly makes the miners a risk-free investment, but what the heck, buy some shares.
As French Field Marshal Ferdinand Foch is quoted as saying before the first Battle of the Marne in 1914: “My centre is yielding. My right is retreating. Situation excellent. I am attacking.”
Investors have taken that advice with gusto, and it is reasonable to remember Foch did eventually prevail after a fair bit of blood was shed.
Last week, the ASX200 pushed above the previous high, hit at the end of July, which in turn beat the previous record set before the financial crisis hit back in late 2007.
The local market to a large extent is hitching a ride on the fortunes of US equities, supported by strong recent gains in local healthcare (think CSL surging towards $300 a share), energy, telco and tech stocks.
AMP strategist Shane Oliver says while problems with trade, weak global economic data and US politics will continue to bubble away and volatility will be an ongoing theme, overall the rally doesn’t looked over-cooked.
Valuations are OK – particularly against low bond yields. Global growth indicators are expected to improve through next year and monetary and fiscal policy are becoming more supportive, all of which should support decent gains for share markets on a six to 12 month horizon,’’ Dr Oliver said.
Markets take a breather
The ASX was not alone in scaling a new pinnacle, but like the key US indices, it took a breather on Friday.
Wall Street slid on low volumes in a half day’s trade, as time off was given to digest the mountain of turkey consumed the day before for Thanksgiving.
However, there was also a bit of a chill in the air over trade talks.
Chinese officials are getting pretty testy about the US backing of Hong Kong protesters, China’s state-owned media reported, while the US reportedly is considering expanding its powers to stop more foreign shipments of products with US technology to China’s Huawei.
Nonetheless, the S&P500 gained 3.4 per cent over the month, while the tech-centric Nasdaq added 4.5 per cent.
The ASX was up 2.3 per cent in November, in line with European gains.
Commodities had a pretty solid month.
Despite falling 4 per cent on Friday, the global oil benchmark Brent crude was up 6 per cent in November, iron ore put on close to 5 per cent, while gold slipped a bit as risk was back in town.
Markets on Friday’s close:
- ASX SPI 200 futures +0.1pc at 6,861; ASX 200 (Friday’s close) -0.3pc at 6861
- AUD: 67.6 US cents; 61.4 euro cents; 52.3 British pence; 74.0 Japanese yen; $NZ1.05
- US: Dow Jones -0.4pc at 28,051; S&P500 -0.4pc at 3,141; NASDAQ -0.5pc at 8665
- Europe: FTSE -0.9pc at 7,347; DAX -0.1pc at 13,236; EuroStoxx50 flat at 3704
- Commodities: Brent oil -4.0pc at $US62.43/barrel; Gold +0.6pc at $US1466/ounce; Iron ore $US89/tonne.
Big week ahead
Third-quarter GDP is traditionally a furiously busy week data wise as the ABS hands out a mass of numbers to fill the spreadsheets economists have hanging from their mantelpieces before Christmas.
After that, it’s pretty quiet through to February.
Putting aside the various GDP partials coming up, CoreLogic’s house price index (Monday) is likely to show that the rebound that’s been going on since June is accelerating.
Will retail sales finally respond to the rather delayed defibrillator treatment of rate cuts and tax rebates, or will things continue to flatline?
Thursday’s figures may provide insights.
On the other hand, the export sector’s rude health will be on display with another big surplus likely booked for October (Thursday).
Lower commodity prices in the month may keep the lid on things a bit, but it will still be an impressive number.
Globally, the focus will be on various manufacturing surveys. Despite all the hurdles, Australia’s expansion in factory activity will be among the strongest.
Elsewhere, factory activity, while being in the doldrums, has generally been more robust over the past few months.
A batch of strong readings may well give global markets another leg-up leading into the New Year.
|Monday||House prices||Nov: Nationally house prices have risen almost 4 per cent over 4 months. That trend is accelerating|
|Company profits||Q3: Rose 4.5 per cent in the previous quarter thanks to miners. Likely to softer this time|
|Inventories||Q3: Always volatile, but likely to add to Q3 GDP growth|
|Building approvals||Oct: Likely to fall again after a surprise spike in apartment permits|
|Manufacturing surveys||Nov: PMIs from both AiG and CBA, both expanding|
|Tuesday||RBA rates meeting||No change expected|
|Current Account balance||Q3: Previous quarter saw the first CA surplus in 44 years, this is likely to be the second|
|Net exports||Q3: Expect another solid contribution to GDP|
|Public demand||Q3: Government spending likely to continue to underpin GDP|
|Wednesday||GDP/ National Accounts||Q3: Growth likely to edge up to 1.7 per cent, but still weak|
|Thursday||Retail sales||Oct: Perhaps a marginal improvement, if only because it couldn’t get much worse|
|Trade balance||Oct: Down from the June record of $7.9b, but still sizeable|
|Metcash FY results||Underlying net profit is forecast to edge up around 1 per cent to $95m|
|Friday||Construction index||Nov: AiG survey showing construction is contracting sharply, dragged down by the residential sector|
|Monday||US,CH,EU: Manufacturing surveys||Nov: PMIs & ISM (US): October saw China’s factory expand, the others contracted|
|Thursday||EU: GDP||Q3: Annual growth holding at just 1.2 per cent|
|US: Factory orders||Oct: Have been slipping, likely to pick up|
|Friday||US: Jobs, unemployment & wages||Nov: Around 190K new jobs expected, unemployment 3.6 per cent & slight increase in wages tipped|