Australian and global economic month in review
Written and accurate as at: Aug 17, 2021 Current Stats & Facts
Australia
RBA left the cash rate unchanged at f 0.1% during its August meeting, as widely expected, while maintaining the target of 0.1% for the April 2024 Australian Government bond. Additionally, it upgraded the outlook for 2022 with economic growth expected to be 4.0% and the unemployment rate to be 4.25%. CPI for 2Q21 came in at 0.8%, slightly above the expected 0.7% and lifting the annual rate to 3.8%. The labour market has continued to recover, with the unemployment rate falling to 4.9% in June, an 18-month low. The declining unemployment rate continues to coincide with employers reporting high levels of job vacancies and difficulties in finding suitable people for them.
The Westpac consumer confidence index rose 1.5% to 108.8 in July, beating expectations of a 2.5%, with concerns over the coronavirus outbreak and associated restrictions in New South Wales not spilling over to the rest of the country. This, however, may change in August with the lockdown in NSW extending for four more weeks and snap lockdowns in QLD and VIC. The NAB business confidence index fell sharply to 11 in June, well below expectations of 19, amid COVID-19 lockdowns in New South Wales and Victoria. Confidence weakened across all industries except mining and manufacturing.
The Markit Manufacturing PMI fell 1.7pts to 56.9 in July, slightly above expectations of 56.8. The trade surplus widened to $10.50 billion in June, surpassing expectations of $10.45 billion, as exports and imports rose 4% and 1%, respectively.
Global
Global Covid-19 cases continue to rise with numbers surpassing 197 million cases at the end of July, an increase of 14 million in the month. Delivery of vaccines continues to rise with 3.8 billion doses delivered globally as at the end of July, with the European Union saying that 200 million Europeans have been fully vaccinated. Vaccination remains key as countries with high vaccination rates showing lower hospitalisation and death rates even with increased infection rates.
Key economic indicators continue to improve generally, with several leading economies reporting above expected increases in inflation.
The US Fed kept interest rates on hold at 0.25% as widely expected, indicating that it is moving closer towards tapering bond purchases. CPI rose 0.9% in June, surpassing expectations of 0.5% and marking the largest monthly rate since June 2008. The yearly rate lifted to 5.4% against expectations of 4.9%. Core CPI lifted 0.9% in June, above the expected 0.4% while the yearly rate rose 0.7% to 4.5% (4.0% expected). The first estimate for 2Q21 GDP disappointed, coming in at a 6.5% annual growth rate, well below the expected 8.0%.
Non-farm payrolls added 943,000 jobs in July, surpassing expectations of 870,000 and up on June’s upwardly revised 938,000. The robust gain in non-farm payrolls saw the unemployment rate fall to 5.4%, below expectations of 5.7%, which coupled with a rise in the participation rate to 61.7% reinforces the strength of the economy.
Personal consumption expenditures grew strongly, posting an 11.8% annual growth rate, led by growth in services and nondurable goods. Personal income surprised in June, rising 0.1% against expectations of a 0.3% decline.
The PMI Composite Index fell 4 points to 59.9 in July, from June’s 63.7, with the rate of expansion the softest since March amid a slower upturn in service sector activity. The Philadelphia Fed Manufacturing Index fell for the third month to 21.9 in July, well below the market forecast of 28 and the lowest since December. The Chicago PMI jumped 7 points 73.4 in July, the second-highest pandemic-era reading. The trade deficit widened to US$75.7 billion in June, exceeding expectations of a rise to US$73.9 billion.
Eurozone economic sentiment rose in July for a sixth month in a row to an all-time high of 119.0, ahead of the expected 118.7. The increase was supported by hopes of a strong economic recovery due to the reopening of economic activities. The ECB left its policy-setting unchanged at its July meeting, as widely expected. It also commented that the PEPP will continue at least until the end of March 2022 and buying will be at a significantly faster pace than earlier this year.
The Markit manufacturing PMI stood at 62.8 in July 2021, little-changed from expectations of 62.6, but down slightly from 63.4 in June. The Markit Services PMI rose 1.5pts to 59.8 in July, missing expectations of 60.4. Retail sales expanded 1.5% in June, below expectations of 1.7% as the yearly rate fell 3.6% to 5.0% (4.5% expected). CPI rose 0.4% in July, as widely expected, while the yearly rate fell 0.2% to 2.3%.
PPI rose 1.4% in June, while the yearly rate increased 0.7% to 10.3%. The unemployment rate fell 0.3% to 7.7% in June, coming in below expectations of 7.9%.
In the UK, CPI rose 0.5% in June, surpassing expectations of 0.2%, as the yearly rate increased 0.4% to 2.5% (2.2% expected), marking the highest inflation rate since August 2008. Retail sales increased 0.5% in June, broadly in line with expectations, with the yearly rate at 9.7%.
The July Markit/CIPS Composite PMI fell more than expected to 59.2, well below the 61.7 estimate. This signals the slowest rate of private sector expansion in the UK for four months. COVID related restrictions largely lifted in England on July 19, with other jurisdictions following by the end of the month.
China’s inflation rate for June unexpectedly fell 0.4%, compared with forecasts of a flat reading, while the annual also fell to 1.1% from May's eight-month high and market expectations of 1.3%. The unemployment rate remained at 5%, the lowest rate in two years. Retail sales rose by 12.1% year-on-year in June, after a 12.4 % gain in May and compared with expectations of 11 %.
The Caixin Composite PMI jumped to 53.1 in July 2021, up from June's 14-month low of 50.6, pointing to a stronger rise in overall Chinese business activity. The acceleration in activity growth came in after the epidemic in Guangdong province was brought under control, and before Covid-19 resurged in Jiangsu province, the country’s most widespread outbreak in months.
The trade surplus was US$56.6 billion in July, above market consensus of US$51.5 billion, with exports and imports rising 19.3% and 28.1%, respectively.
In Japan, Tokyo hit a new daily record of 3,177 new COVID-19 cases at the end of July, as pressure mounted on the hospital system and increased concerns to the ongoing Olympic games.
The Japan consumer confidence rose 0.1pts to 37.5 in July, beating expectations of a decline to 37.0. Retail sales rose 0.1% year-on-year in June 2021, below market expectations of 0.2%. This was the fourth straight month of growth in retail trade but the weakest pace, as consumption weakened following the latest surge of local COVID-19 infections.
CPI rose 0.3% in June, ahead of expectations of 0%, as the yearly rate increased to 0.2%. Household spending slumped 3.2% in June, falling short of expectations of 2.0% growth, marking the first decline in household consumption since February, as spending deteriorated following the latest wave of coronavirus cases. The yearly household spending rate fell to -5.1%, much lower than the expected 0.1%.
Currencies
The Australian dollar continued to fall over the month of July, dropping -2.0% against the greenback and -1.8% in trade-weighted terms. Domestic lockdowns in major economic centres of Australia continue to suppress investor confidence, further weakened by the rapidly growing outbreak of the highly infectious Delta variant of COVID-19 in New South Wales.
Announcements earlier in the month from the RBA regarding the tapering of QE offered some support to the AUD, however, this may be overshadowed by the recent steep price decline in Iron Ore moving into August.