A review of the Australian data, global equity and bond markets

Australian economy mixed

It’s a mixed outlook, but probably generally better than what a number of analysts suggest and the RBA is likely to sound reasonably upbeat.

The housing market is an obvious risk, and it appears that Australian housing and household confidence would be quite sensitive to higher rates.  But as it stands there is reason to see further improvement in the labour market and business spending.  The mining bust is largely over and government spending on infrastructure is now growing rapidly.

Monthly inflation indicators suggest that CPI inflation may firm further in Q2.  The surge in electricity prices may be a factor that places some upward pressure on inflation.

Business surveys are stable at solid levels.  Measures of business capacity utilization are at highest levels since 2008, so suggests progress in closing output gap and potential for investment to improve.

Labour market has been on a solid improving trend this year.  However, there still appears to be significant slack in measures of under-employment.  Wage growth is stable but low.  Job ads, vacancy, and business surveys suggest it can continue to improve.

The housing market (finance, building approvals, and sales activity) all are slowing.  The evidence suggests lending conditions have tightened and market has peaked and would be vulnerable to a rate rise.

Consumer confidence is weak, household spending jumped in April, but has been trending weaker for two years.  It may be now undermined by high household debt, modest credit tightening and peaking in the housing market.

 

See attached doc for Australian economy charts and global equity and bond market charts.