There was nothing from the flow of data here or offshore yesterday and last night to force a change of heart from the Reserve Bank’s last board meeting of 2013 which will leave the cash rate steady on 2.5%.
Not even the surprisingly sharp sell-off on the local market – the third in 10 days – will sway the central bank’s decision to sit and wait to see if the string of rate cuts work their magic on the domestic economy.
The market fell to six month lows yesterday (after the 1.9% drop in November). The S&P/ASX200 ended off 40.5 points, or 0.8%, to 5279.5, while All Ords lost 40.8 points, or 0.8% as well, to end at 5273.5.
Local investors ignored solid news from the two surveys of Chinese manufacturing which showed continued modest expansion in November, with the early dip in the HSBC/Markit survey being reversed in the final report yesterday.
Local building approval eased, but not by as much as forecast by some commentators, the rise in house prices slowed in November and local manufacturing lost all the gains of October in November’s report released yesterday.
The local market’s fall was led by falls among the big banks. The Aussie dollar strengthened by close to half a US cent in trading yesterday and overnight, thanks to the news from China.
In a pointer to tomorrow’s third quarter GDP report, data yesterday from the Bureau of Statistics showed a fall in business stocks, a fall in sales, but a bigger than expected rise in company profits, and a modest rise in wages and salaries. All that points to growth of around 0.6% to 0.7% for the quarter.
But the government finance data and especially the September quarter current account figures (which will include stronger than expected iron ore exports) will have a major influence on the final report on Wednesday morning from the ABS.
The most important report was the second of the two monthly surveys of Chinese manufacturing.
The HSBC/Markit monthly survey of China’s manufacturing sector came in at 50.8 for November, up from an initial estimate of 50.4 and almost unchanged from 50.9 in October. The results of the manufacturing Purchasing Managers’ Index showed the fourth straight month of rising production, with the growth at its fastest rate since March.
The report indicated that production "was largely driven by domestic demand" as new export orders only rose slightly.
The result was largely in line with Sunday’s release of the report from China’s government-sponsored version of the PMI, which was unchanged from October. China’s November economic data will start flowing this weekend.
The November house price report from RP Data-Rismark showed a slowdown in the pace of growth in major capital cities last month.
The report shows house prices only rose 0.1% in the major capitals, after rising 1% a month for five of the past six months.
RP Data-Rismark said the Melbourne market fell by 2.1% in November, Brisbane failed to show any movement and values fell by 0.5% in Hobart and 1.3% in Canberra. Rises of 0.9% were recorded in Sydney, 1.2% for Adelaide, Darwin was up and Perth topped the country with a 2.9% jump. Annually, house prices rose 8.3% in the 12 months to November.
Still in housing and there was a 1.8% fall in building approvals last month after a rise of 16.9% in September.
Local councils around the country approved the construction of 16,491 new homes in October, down from the 16,791 approvals in September (restated higher from the 16,318 reported in October’s report), which was the highest since March 2010. October’s figure was boosted by a high number of non-dwelling approvals for home units and townhouses.
The ABS said that over the year to October, total building approvals were up 23.1% (boosted by those strong figures for home units and townhouses).
Approvals for private sector houses fell 0.3% in the month, after rising 1.3% in September and the ‘other dwellings’ category, which includes apartment blocks and townhouses, was down 2.7% from the surge in approvals in the previous month (but still at a very high level compared with recent months).
The TD Securities-Melbourne Institute inflation gauge showed an 0.2% rise last month after an 0.1% increase in October. The annual rate rose to 2.4%, from 2.1%. The rise is not important.
November saw a sharp fall in the pace of activity in the country’s manufacturing sector.The Australian Industry Group’s Australian Performance of Manufacturing Index showed a fall of 5.4 points to 47.7 in November, which signals a return to contraction. There had been sharp improvements in September and October.
But the most intriguing report was the September quarter’s business indicators – which showed a fall of half a per cent in inventories (which will reduce GDP growth, but which is a positive development because it means manufacturers and wholesalers are not holding onto excess, unsold goods). Company profits rose by almost 4% in the quarter, when a rise smaller than 3.9% had been expected by the market.
Interestingly there was a rebound in profits by miners (up 8.1%) and manufacturers (up 22.6%, from a low level though) in the quarter, indicating that the slow fall in the value of the dollar could be having a positive impact, at long last.
Nominal wage grow was 0.7% in the quarter, about what the slow growth in employment and wage price indexes have been showing. That is a negative because slow wage growth is a drag on spending. But then retail sales grew strongly in the September quarter, so perhaps the slow wage rises are not such a hindrance.
And finally the Reserve’s Bank’s Commodity Price Index for November (see the graph below) also showed some sign of the impact of the weaker dollar on the prices and value of some of our commodity exports. The bank said the index rose in November in Aussie dollar terms, to be up 9.6% over the year.
"The prices of iron ore and thermal coal increased in November, which were partly offset by declines in the prices of gold, coking coal and wheat. The base metals and the rural subindices also declined in the month. In Australian dollar terms, the index increased by 1.5 per cent in November.
"The index has risen by 9.6 per cent in Australian dollar terms over the past year," the RBA said in a small commentary with the graph.
The graph shows that prices for our commodities remain very high by any measure, except comparing it with the mega boom in 2011. The rise in $A terms does suggest that our terms of trade might be steadying at a very high level.
