The Reserve Bank of Australia lowered its growth and inflation forecasts in its Monetary Policy statement Friday but the Aussie dollar’s reaction was muted. Indeed, the content of the RBA’s quarterly Monetary Policy Statement was broadly similar to the post-meeting statement.
The RBA now expects the economy to grow 3 percent in both 2012 and 2013, down from its previous forecast of 3.5 percent for 2012 and up to 4 percent for 2013. It now sees underlying inflation, excluding the impact of a looming carbon tax, at just 2 percent in 2012, down from 2.5 percent previously and at the base of its 2-3 percent target band. For 2013 it suggested a wider range of 2-3 percent compared to an absolute 2.5 percent the last time. Both together suggest there is further room and scope for more rate cuts in the future but there was no actual guidance on rates in the statement.
On the current state of the economy it noted that the economy grew at a “modest” pace with measures for business and consumer sentiment at, or just below, longer-term average levels but indicators for future building activity were at low levels. Employment growth had picked up modestly in the last quarter, but outside of the mining sector, labour growth remains subdued. While on the mining sector, it upgraded its outlook seeing investment rising to about 9% of GDP in 2012/13. It acknowledged that other parts of the economy were struggling with the high AUD but offered no solution.
Externally, Europe was seen as the biggest downside risk while the slowdown in Chinese growth was largely expected and coming down to more sustainable levels.
The HSBC services PMI was a bit of a surprise, advancing to 54.1 from 53.3 and in contrast to the official PMI reading which slid to 56.1 from 58.0 (though this was in-part due to an adjustment in its methodology). This marked a 6-month high for the index with growth in new orders at a 10-month high while employment expanded for the 39th consecutive month with April’s job creation the sharpest since last November.
While on China, US Treasury Secretary Geithner said (on a visit to Beijing with Secretary of State Clinton) to China’s Hu that China’s moves towards a more market-oriented exchange rate regime were “very promising” and the aim to expand consumption and domestic demand likewise. At the same time China’s Peoples Daily ran an article saying that the Chinese Yuan was at equilibrium, and even high in some respects, with the US dollar.
There was no change from the ECB Thursday (and apparently no discussion of interest rate moves) but EURUSD traded briefly below the 1.31 mark at the start of President Draghi’s press conference. The general content was more upbeat (less-dovish) than the market expected, particularly when he cautioned that inflation is likely to stay above 2 percent in 2012. GBP was also pressured following another weak PMI reading – this time the services PMI registering its weakest level since last November at 53.3 from 55.3.
We had a mixed bag of data out of the US. Weekly jobless claims showed a surprise turnaround with a 365k print from a revised 392k the previous week and better than the consensus 379k. The RBC consumer outlook index also improved to 47.6 from 46.6, its best since September 2008. However, Challenger job cuts were up 11.2 percent y/y after declining 8.8 percent the previous month, non-farm productivity fell in the first quarter by 0.5 percent but unit labour costs rose by a less-than-expected 2.0 percent q/q following a 2.7 percent increase last quarter. The non-manufacturing ISM was also soft, falling to a four month low of 53.5 in April and missing market consensus of 55.3 by a large margin. Overall, a general mood of risk-off permeated through markets favouring the USD with commodity currencies hit especially hard on a weaker CRB index.
Data Highlights
US Q1 Non-farm Productivity out at -0.5% q/q vs. -0.6% expected and revised +1.2% prior
US Q1 Unit Labour Costs out at +2.0% q/q vs. 2.7% expected and revised +2.7% prior
US Initial Jobless Claims out at 365k vs. 379k expected and revised 392k prior
US Continuing Claims out at 3276k vs. 3311k expected and revised 3329k prior
US Bloomberg Consumer Comfort Index out at -37.6 vs. -35.8 prior
US Apr. ISM Non-manufacturing out at 53.5 vs. 55.3 expected and 56.0 prior
China Apr. HSBC Services PMI out at 54.1 vs. 53.3 prior
Upcoming Economic Calendar Highlights
(All Times GMT)
UK Halifax House Prices (0700)
Swiss Retail Sales (0715)
Sweden Service Production (0730)
GE PMI Services (0755)
EU PMI Services/Composite (0800)
Norway Unemployment Rate (0800)
EU Euro-zone Retail Sales (0900)
US Change in Non-farm Payrolls (1230)
US Unemployment Rate (1230)
CA Ivey PMI (1400)
US Fed’s Williams to speak (1525)
US Fed’s Evans to speak (1530)
Andrew Robinson,
SAXO BANK