Words by: Jonathon Davidson
For the time poor: Australian inflation is still nearly triple the RBA's lower target band range.
But let's cyle back. The week started off with Australian ABS retail spending data for July, with a 0.5% growth rate above consensus of 0.3% and well above Morgan Stanley's estimates of only 0.1%. Analysts for the latter firm probably got a stern talking to.
In my view, the news challenges those who believe the RBA was already done raising interest rates. Then there was the inflation data for July at 4.9% — but get rid of fuel and food prices, and we're actually at 5.8%. That's still nearly triple the lower end of the target band of 2%. When you include auto fuel, lower Brent crude prices through July drove down the inflation read to 4.9%—consider that Brent prices have gone up in two waves since, one earlier this month, and another happening right now. Brent is nearly at US$90/bbl at the end of Week 35, up more than 6% over the week.
In China, the start of the trading week saw Evergrande shares resume trading in Hong Kong after 17 months – and immediately get obliterated. Evergrande shares slumped 87% in the first hour of trades. At around the same time, China announced it had approved 17 new ETFs and about as many other fund-managed products in a bid to stimulate the markets.
In the US, the world's largest economy revised downward its Q2 GDP growth rate data from 2.4% to 2.1%. Two interesting observations from AMP this week also add to this story: the US consumer appears to continue spending to the detriment of their own household savings ratio.
Whether or not this is the true macropsychological story at play, the counterintuitive data does point towards a broad ongoing erasure of household savings. In my view, it would be interesting to get data on the pace of households' savings replenishment rates. Also from AMP: the European Central Bank has more chance of raising interest rates than the US Fed, according to Shane Oliver's weekly wrap.
Back home, the Australian energy market operator has said its betting on an El Nino summer, warning of blackouts — in short, heightened residential, commercial, and industrial A/C demand is likely to overload the system. No one source point is responsible, and the problem really has a lot to do with aging equipment.
In Week 36, we get the next RBA interest rate decision. While Michele Bullock doesn't actually take charge until mid-Sep, she will deliver the minutes pertaining to the decision — so in effect, it's the first look we're going to get at the new Governor. Don't forget that news of her appointment failed to move forex markets one way or another, suggesting everyone is expecting more of the same.
Australian inflation still nearly triple lower target band range
The Market Herald
The Australian Bureau of Statistics (ABS) has released its Consumer Price Index (CPI) inflation data for the month of July, revealing that Australian inflation grew by 4.9 per cent in the twelve months to July.
The June data showed growth over the twelve months to June of 5.4 per cent. The new data indicates that the country's struggle with inflation continues to align with the RBA's thesis, with a slowdown in overall inflationary growth.
However, the CPI reading includes volatile elements such as food, fuel, and holiday travel.
"When excluding these volatile items, the decline in annual inflation is more modest at 5.8 per cent in July, compared to 6.1 per cent in June," ABS Head of Price Statistics Ms Marquardt said.
Aus retail sales jump 0.5%, defying expectations of cooler economy
AFR
Australian retail sales bounced 0.5 per cent in July, beating forecasts of a 0.3 per cent gain and followed a surprise drop last month. The rise in July follows a 0.8 per cent fall in June 2023 and a 0.8 per cent rise in May 2023.
"While there was a rise in July, underlying growth in retail turnover remained subdued. In trend terms, retail turnover was unchanged in July and up only 1.9 per cent compared to July 2022, despite considerable price growth over the year," said Ben Dorber, ABS head of retail statistics.
Brent Crude is at US$89/bbl
Trading Economics
Brent crude futures rose above $88 per barrel on Friday, the highest since January, and were set to gain about 4.8% this week, underpinned by tightening supplies and expectations that OPEC+ leaders would extend output cuts through the rest of the year.
Markets expect Saudi Arabia to extend a voluntary oil production cut of 1 million barrels per day into October, and for Russia to implement export cuts through next month as well. In the US, the latest data showed that crude inventories plummeted by 10.6 million barrels last week, far exceeding forecasts for a 3.3 million barrel draw. Meanwhile, a Reuters survey indicated that production from Iran rose to 3.1 million bpd in August, the highest since 2018.
Chinese construction giant Evergrande resumes trading in HK – and loses 90%
AFR
Property developer China Evergrande Group plunged 87 per cent as it resumed trading in Hong Kong after ending a 17-month trading halt.
The world's most indebted company unveiled a $4.5 billion loss in the first half after a lengthy debt restructuring process.
China approves 17 new ETFs in a bid to stimulate market activity after slump
CNA
China's securities regulator approved the launch of 37 retail funds over the weekend, part of government efforts to revive a stock market struggling for lift-off in an ailing economy.
The newly-approved funds, which will guide fresh capital into the market, include 10 exchange-traded funds (ETFs) that track the small-cap CSI 2000 Index and seven tech-focused ETFs, according to the China Securities Regulatory Commission (CSRC) website.
China's bluechip CSI300 Index surged more than 5 per cent at the open on Monday, but is still down roughly 6 per cent from an April peak.
US consumer confidence falls by most in 2 years
Bloomberg
US consumer confidence fell by the most in two years as souring views on the labor market, higher borrowing costs and lingering inflation curbed optimism. The Conference Board's index fell to 106.1 this month from 114 in July, data out Tuesday showed. The number was below all estimates in a Bloomberg survey, and the decline reversed most of the advance over the previous two months.
US Government revises downward its GDP data to 2.1% from 2.4%
AFR
The US economy expanded at a 2.1 per cent annual pace from April through June, showing continued resilience in the face of higher borrowing costs for consumers and businesses, the government said Wednesday in a downgrade from its initial estimate. The government had previously estimated that the economy expanded at a 2.4 per cent annual rate last quarter.
Chance of further rate hikes more likely in EU than US: AMP
AMP
US data showing more signs of a cooling jobs market and a moderation in monthly inflation further lower expectations that the Fed will have to hike rates again. By contrast Eurozone headline inflation was a bit stronger posing a dilemma for the ECB. We see both central banks leaving rates on hold this month, but the risks of another hike are higher in Europe.
US consumer appears to continue spending despite diminishing own savings: AMP
AMP
US economic data was mixed. Home prices continued to rise in June and spending rose sharply in July. But consumer confidence unexpectedly fell in August and the sharp rise in consumer spending relative to incomes saw the household savings rate fall.
Australian Energy Market Operator calls 2023 El Nino summer; warns of blackouts
AFR
Victoria and South Australia face an increased risk of rolling blackouts this summer, the electricity grid operator has warned, as the return of an El Niño weather pattern brings a hot, dry summer with lower wind output.
In a far bleaker assessment than six months ago, the operator warns the failure to replace ageing coal plants with clean power fast enough combined with potential shortages of coal and gas have significantly raised the risk of blackouts across the grid.
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