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5 Mar 2014
Flash: Negativity on Australian economy over-done - RBS
FXStreet (Bali) - According to Greg Gibbs, FX Strategist at RBS, the negativity around the Australian economy is looking over-done.
Key Quotes
"Australian GDP rose 0.8%q/q in Q4, above 0.7% expected. In light of recent capex and other building blocks many may have expected a lower than market median forecast outcome today. This pushed annual growth to 2.8%y/y in Q4, up from 2.4% (revised up from 2.3%) in Q3, above 2.5% expected."
"This data comes after a much higher than expected building approvals report on Tuesday and a large rise in the services PMI earlier today to a high since 2008 (55.2 in Feb), well above 50 for the first time since Jan-2012. Last week job ads data also jumped by 5.1% in Feb, the largest rise since 2010."
"The most recent or forward looking indicators have been very strong, and this GDP data suggests the base was not too bad. The negativity around the Australian economy is looking over-done and upward pressure on rates is likely. On recent trends we would favour both the retail sales and trade balance bettering expectations when released on Thursday."
"So far the market has a small risk of cuts over the next six months priced-in, turning to 10bp of tightening priced in over 12 months. This pricing has hardly changed over the last week despite the stronger data. A couple of big banks are still calling for lower rates in Australia and are assuming a big detraction from growth and employment from the mining slowdown."
"However, just as the positive impacts of the investment boom were often over-stated on the way up, the risk is they are overstated on the way down. There is much uncertainty over the Australian economic outlook and inflation over the period ahead, but the commentary from bank economists suggests they are wedded to their negative forecasts and are ignoring recent indicators."
Key Quotes
"Australian GDP rose 0.8%q/q in Q4, above 0.7% expected. In light of recent capex and other building blocks many may have expected a lower than market median forecast outcome today. This pushed annual growth to 2.8%y/y in Q4, up from 2.4% (revised up from 2.3%) in Q3, above 2.5% expected."
"This data comes after a much higher than expected building approvals report on Tuesday and a large rise in the services PMI earlier today to a high since 2008 (55.2 in Feb), well above 50 for the first time since Jan-2012. Last week job ads data also jumped by 5.1% in Feb, the largest rise since 2010."
"The most recent or forward looking indicators have been very strong, and this GDP data suggests the base was not too bad. The negativity around the Australian economy is looking over-done and upward pressure on rates is likely. On recent trends we would favour both the retail sales and trade balance bettering expectations when released on Thursday."
"So far the market has a small risk of cuts over the next six months priced-in, turning to 10bp of tightening priced in over 12 months. This pricing has hardly changed over the last week despite the stronger data. A couple of big banks are still calling for lower rates in Australia and are assuming a big detraction from growth and employment from the mining slowdown."
"However, just as the positive impacts of the investment boom were often over-stated on the way up, the risk is they are overstated on the way down. There is much uncertainty over the Australian economic outlook and inflation over the period ahead, but the commentary from bank economists suggests they are wedded to their negative forecasts and are ignoring recent indicators."