Developments in the Australian and Global Economies
Written and accurate as at: Nov 21, 2019 Current Stats & Facts
Australia
The Reserve Bank lowered the cash rate in early October for the third time this year by 25 basis points to a record low of 0.75%, in a bid to decrease the unemployment rate and push inflation back into the 2-3% target band. With unemployment rising from 5.0% at the start of the year to 5.3% in October and an inflation rate of only 1.7% posted by the RBA in October. Many economists are now forecasting that the RBA may cut rates further in early 2020.
A recovery appears to be continuing for housing prices. The CoreLogic dwelling prices across 8-capital cities rose 1.4% over October, the most substantial monthly gain in around ten years, marking the fourth successive month that prices have risen. Further expectations of future rate cuts would improve demand for housing, while stagnant wage growth and high household debt levels are likely to restrict the recovery.
United States
Trade talks between the US and China initiated in early October, with media reports signalling that a partial trade deal yet remains. China’s Vice Premier Liu He stated that the two countries were making progress on the “Phase 1” agreement, with the agreement possibly being formalised as soon as next month. Trump tweeted about a “Substantial Phase 1 deal”, further signifying a positive outcome. Although progress may lead to the US cancelling tariff increases of US$250Bn on Chinese goods, there are no signs that either side will shift on the key disputes of subsidies for Chinese State-owned enterprises and technology protection.
Positive sentiment surrounding trade talks distracted markets from another weak outturn in US CPI data, as prices rose beneath expectations in September. The core measure lifted 0.1% over the month, below market expectations of 0.2%. Headline inflation was 1.7% year-on-year. Conversely, the US labour market showed strength in September as the unemployment rate fell to 3.5%, the lowest seen since December 1969. A total of 136,000 new jobs added to the economy over the month.
Asia
China’s Balance of Trade Surplus increased from $34.83Bn USD in August to $39.65Bn USD in September. The surplus reported was less than expected. China’s exports in Yuan terms fell by 0.7% year on year in September, as shipments to the US fell, still being affected by trade wars. Chinese imports dropped 6.2% in the same period.
The Jibun Bank flash manufacturing survey for Japan fell from 48.9 in September to 48.5 in October – the weakest result in three years. Exports in Japan fell for the 10th consecutive month in September, as slowing demand and global trade instability impacted profoundly.
Europe
The Eurozone flash PMI’s were mixed across the board. The services and composite indices improved slightly, remaining in expansion. Manufacturing, however, remained at 45.7, indicating that activity is likely to continue to contract. Germany posted the lowest PMI figure across the Eurozone in October, edging up from 41.7 to 41.9, however sitting well below the expansionary benchmark of 50. The reading pointed to the tenth consecutive contraction in factory activity.
The EU agreed to grant a Brexit extension at the end of October as the deadline was not met, providing further consolation that the UK can avoid a “no-deal” Brexit. The UK now has until 31 January 2020, to leave the EU. British Prime Minister Boris Johnson attempted to call a snap election for the third time. Parliament denied the proposal yet again.