ASX poised to rise, GDP data ahead

August 27, 2019

 

Australian shares are set to open higher ahead of a key speech by the RBA governor and fourth quarter GDP data. ASX futures were up 9 points at about 8.15 am AEDT.

The Australian dollar slipped 0.1 per cent.

Wall Street’s three benchmarks ended slightly lower.

The initial focus for local investors today will be a speech by RBA governor Philip Lowe at 9.10am AEDT at The Australian Financial Review Business Summit in Sydney. The title of his speech is The Housing Market and the Economy.

Mr Lowe’s speech, of course, follows a policy meeting at the central bank yesterday where as expected the cash rate was held steady at 1.5 per cent.

“The RBA statement contained little new, unsurprising given the raft of speeches since the last meeting. It is sticking to its base case for 3% growth in 2019 and an eventual move lower in the u-rate which remains optimistic in our view, and suggests the hurdle to cut is not that high if growth and unemployment fall short of the RBA’s base case (though the fwd curve is already priced that way),” RBC’s global head of FX strategy Elsa Lignos said in an overnight note.

The first hurdle for the RBA is today’s fourth quarter GDP report and if the recent partials are indicative of the economy’s current state, there’s downside risk, Ms Lignos also said.

TD Securities is forecasting a 0.2 per cent quarterly increase and a 2.4 per cent annual one. TD puts the market at plus 0.4 per cent for the quarter and plus 2.6 per cent for the year.

“A Q4 GDP outcome of +0.2%/qtr or below potentially paves the way for the RBA to shift to an explicit easing bias,” TD said. “The AUD at US70.80¢ is near the bottom of its recent range and poised to test US70¢ should GDP disappoint again. Ahead of the RBA, OIS was 83% priced for a November 25bp cut, and now 91% priced awaiting GDP.”

“We remain of the view that a low and stable exchange rate is more beneficial for the economy than another rate cut. TD and consensus expects the 1.5% cash rate to prevail through to mid-2020,” it also said.

NAB chief economist markets Ivan Colhoun said while the RBA’s Tuesday statement reiterated its optimism about the economy, it posed some questions too.

“The inclusion of employment as a driver for growth [in the RBA statement] is most unusual – rising employment is usually a consequence of strengthening growth, rather than a driver. There’s a clear puzzle for the RBA between the continuing strength in Australia’s labour market and what it acknowledges in today’s statement as a slowing in growth in the second half of 2018.

“If growth remains reasonable unemployment should remain low,” Mr Colhoun said. “The bank seems happy in this scenario to allow the housing correction to run its course, as consumer spending would hold up. If there are signs consumer spending is weakening due to housing spillovers, unemployment would likely begin to rise and the downside growth scenario would be in play with some further reduction in interest rates likely.”

NAB forecast is that Australian interest rates are unlikely to rise in the next 12-18 months. There is increased risk that the RBA will decide to further reduce the cash rate sometime this year, Mr Colhoun said.

Australian shares are set to open higher ahead of a key speech by the RBA governor and fourth quarter GDP data. ASX futures were up 9 points at about 8.15 am AEDT.

The Australian dollar slipped 0.1 per cent.

Wall Street’s three benchmarks ended slightly lower.