Weekly Economic Update: Trade in the Limelight

Focus from markets is continuing to be on the trade developments between China and the US. Both sides are making positive noises about good progress in regards to negotiations currently underway; discussions are scheduled to continue this week.

The positive news has helped give a turnaround in sentiment, which has seen US share markets lift to just shy of their 2018 highs and partial recovery in bond yields. A strong jobs report also allayed fears of a US slowdown, although a slowdown in wage growth suggests it is still very tame on the inflation front.

The shift in sentiment doesn’t seem to be impacting heavily on the Australian dollar, which is still stuck in a narrow range between 70 and 73 US cents. It has been in this band for the last three months. We see the risks continuing to be on the downside, given our expectation of RBA rate cuts and downside risks to the domestic economy. However, there continues to be a major psychological support level at 70 US cents, particularly in the near-term.

With the Federal Budget out of the way, it will be a much quieter this week on the economic calendar. Housing finance is due out on Tuesday. While we expect a 1.0% lift in both the number and value of owner occupier lending, as a trend, we continue to expect ongoing weakness. In the investor segment, another decline is expected. Nonetheless, there have been some tentative signs of stabilisation in the housing market. Prices are still falling in Sydney and Melbourne, but the rate of decline is easing. Auction clearance rates are also not as low as they once were. The preliminary auction clearance rate topped 60% in Sydney over the weekend. It is too early to say the market is turning and further price weakness is likely, but these are positive signs after a sea of negative sentiment over the past year or so. 

On Wednesday, RBA Deputy Governor Debelle will speak on “the State of the Economy” and the Westpac Melbourne Institute consumer sentiment will be released.

 

For our forecasts, please see the attached report for more information.



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