Don’t expect the Reserve Bank to cut interest rates at its June board meeting today. It wants to wait and see how the economy goes after the surprise cuts in February and May.
Not one of the 28 economists surveyed by Bloomberg sees a third cut in the current cycle today.
The RBA knows that if it cut again today, that would send a message that it sees immediate fears about the health of the economy, which needs a shock third rate cut this year.
That in turn could trigger a fall in confidence and spending by business and consumers – and that doesn’t need another downward push from anyone.
The local stockmarket sold off heavily yesterday after that weak finish in the US on Friday night, confirmation China’s manufacturing sector remains sluggish, and a stark warning from the head of Federal Treasury John Fraser that the Sydney housing market was in a dangerous bubble, with Melbourne showing similar signs of price inflation.
Locally there was nothing in the first day of the start of month data drop to make the RBA change its mind.
Inflation remains well under control, according to the monthly survey by TD Securities which found costs rising at an annual 1.4% – half the 2% to 3% target range of the RBA.
Figures from the Bureau of Statistics showed building approvals fell in April, but that was not unexpected because it came from a drop in non-dwelling approvals (apartments, units, townhouses, etc) which is a very volatile part of the figures.
They dropped 15% in the month, more than offsetting the solid 4.7% rise in new private home approvals. But over the year to April, total approvals rose a very solid 16.6%.
And March quarter figures on company profits and wages, sales and business inventories showed a mixed performance in yesterday’s Business Indicators released by the Bureau of Statistics ahead of tomorrow’s GDP figures.
Gross company operating profits rose 0.2% in the March quarter, better than forecasts, but were still down 7.5% over the 12 months to March.
Sales by manufacturers fell 4.1% in the quarter, seasonally adjusted, but were up 1.9% for wholesalers.
Business inventories rose 0.4% in the March quarter, after falling 0.8% in the December quarter.
And wages and salaries fell 0.1% in the quarter, the first quarterly fall since the September quarter of 2009, the ABS said.
That left wages and salaries up a a weak 1.4% in the year to March.
These figures are mildly positive for the GDP figures tomorrow, but only confirm the RBA’s belief that the economy is muddling along in low gear.
But the monthly survey of manufacturing from the Australian Industry Group showed a surprise rise in activity back to expansion (above the reading of 50). The survey said the index measuring the pace of expansion rose to 42.3, up 4.3 points and well away from the long period of contraction.
For this we can blame the weaker Aussie dollar with the lower currency driving a 10.9 percentage point jump to 58.2 in the exports sub-index, particularly in the food and beverages sectors.
New orders and production were up 5.4 and 3.6 points, respectively. Manufacturing sales, however, fell for the 12th straight month, reflecting weak demand.
The performance in the Australian sector was in contrast where the two surveys of Chinese manufacturing produced conflicting results. The government survey showed a reading of just over5 50, the HSBC/Markit survey showed a reading of just over 49.
But the overall tenor of both reports was that the country’s huge manufacturing sector remains sluggish, with the HSBC/Markit survey now in a contractionary phase for the last three months.
But it’s not just China that’s weak – while Japan is doing OK, the surveys were weak for Indonesia, Taiwan and South Korea last month where exports fell nearly 11% in May, one of the biggest falls in six years.
In fact Japanese manufacturers saw a rebound in new orders.
Indian factories enjoyed solid domestic demand, offering a glimmer of hope for a region struggling to gain traction in the second quarter.
In Europe, most countries saw OK reading, but many missed forecasts as expansion stumbled or slowed.
