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QTPA Member Alert |Australian Economic Developments (27/8/2013)

Australian Economic Developments

This week saw the release of the minutes from the Reserve Bank of Australia’s (RBA) August monetary policy meeting where the board reduced the cash rate by a further 25 basis points to 2.5%.

The minutes suggested that the RBA will adopt a wait and see approach, at least in the short-term, as it assesses the effect of the forthcoming Federal election on business and consumer confidence. In particular, the RBA board noted that with economic activity growing at a “below trend paceit didn’t intend to “close off the possibility of reducing rates further, nor signal an imminent intention to  reduce rates”. Market economists generally expect at least one more rate cut in the December quarter or the March quarter 2014. The RBA’s characterisation of GDP growth was supported this week by the release of the Westpac-Melbourne Institute Coincident Index, which is a timely indicator of the current pace of economic activity. The index recorded 2.5% in June, down from 2.7% in May and is below its long term trend of 2.9%.

The RBA minutes also noted that “survey measures of business conditions had remained below average and [board] members noted an apparent reluctance on the part of businesses to take on new risks. Non-mining business investment remained subdued and a range of indicators suggested that this was likely to persist in the near term.” The release of the minutes appeared to weigh on the  Australian dollar which gradually eased during the week and fell below 90 cents on Thursday (see Chart 1). The currency also appeared to be weighed down by the release of the minutes from the Federal Reserve’s August meeting (the US equivalent of the RBA) which indicated that some [board] members believed that it may be time to start winding down the quantitative easing program.

International economic developments

In the United States, the number of new jobless claims for benefits dropped by 15,000 to 320,000 in the week ended Aug. 10, to be at its lowest level since October 2007. The current momentum of the labour market is being reflected in sentiment measures of both households and homebuilders. In particular, sentiment of homebuilders is at its highest level since 2005.

Existing home sales jumped 6.5% in July to be 17.2% higher over the year. This translates to an annual sales rate of around five million homes, the first time this has been seen since 2007. To put this number into some context, analysts generally think a ‘healthy sales pace’ is roughly between 5 and 5.5 million. 

In China, the HSBC Flash Manufacturing PMI® showed tentative evidence that recent government stimulus measures are helping to support manufacturing activity. The index rose 2.4 points to 50.1 in August, with the output sub-index at a three-month high.


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