Weekly Updates

The collapse of the Silicon Valley Bank has led to a re-assessment of the monetary policy outlook. The headline rates of US CPI and PPI inflation continued to fall in February, but remained elevated. Chinese economic data suggested a further recovery from the zero-COVID policy in February. Aussie employment surged to a fresh record high in February, while the unemployment rate fell back to 3.5%.

At home, the RBA has increased its cash rate target by 25bps to 3.60%, as expected, but signalled a possible pause in tightening ahead. Offshore, Fed Chair Jerome Powell hinted at a possible re-acceleration in the pace of tightening. ADP employment and JOLTS job openings pointed to the ongoing robustness of the US labour market, though initial jobless claims for last week rose more than expected.

In Australia, Q4 GDP growth was slower than expected, while the GDP deflator pointed to the fastest price growth since 1988. The current account remained in surplus in Q4 for the 15th quarter in a row. Retail sales rebounded in January, while inflation slowed. Dwelling approvals plunged to a 10-year low, while the value of new home loans fell again in January.

At home, wages growth slowed in quarterly terms in Q4, but the annual rate of growth was the highest since 2012. Construction work done fell in Q4, while private sector capex rose more than expected. According to the Judo Bank flash PMIs, the pace of contraction in Australian private sector activity eased in February.

In Australia, employment saw a surprising fall in January, while the unemployment rate increased to 3.7%. The NAB business conditions and confidence indices both improved in January, but the Westpac consumer sentiment index plunged in February. In his public appearances this week, RBA Governor Philip Lowe continued to point to further RBA cash rate hikes.

At home, the RBA increased their key interest rates by 25bps on Tuesday, taking the cash rate target to 3.35%. They also signalled more interest rate increases are to come. RBA’s 2023 underlying inflation projection was revised upwards and shows that inflation will still be around the upper bound of the 2-3% target band in mid-2025. Data-wise, Aussie retail sales volumes declined in Q4.

Abroad, the FOMC lifted the fed funds rate target range by 25bps, which is a step down from previous increases. The ECB and Bank of England increased their respective policy rates by 50bps this week. Data-wise, US ISM manufacturing PMI remained in contraction in January, while growth in US ADP employment slowed. The quarterly growth rate in US employment cost index in Q4 was the slowest in a year.

In Australia, CPI inflation figures for Q4 and December surprised to the upside. NAB business conditions deteriorated markedly in December, while business confidence remained low. Flash Judo Bank PMIs pointed to the ongoing contraction in private sector business activity in January. Abroad, US GDP surprised to the upside in Q4.

In Australia, employment unexpectedly fell in December, while the unemployment rate remained at 3.5%. Westpac consumer confidence saw a significant gain in January, but remained depressed. Melbourne Institute inflation gauge signalled a decline in inflation in December.

In Australia, dwelling approvals saw another big fall in November as did new home loans. Retail sales boomed in November, while CPI inflation picked up steam again. The external trade surplus widened in November. Job vacancies fell for the second quarter in a row in the three months to November but remained almost double the pre-COVID level.

In Australia, the RBA Board meeting minutes from December showed that the Board considered a 50bps increase, 25bps increase or no change in the cash rate at the meeting before settling on 25bps. Private sector credit growth was steady in November. The CoreLogic home value index fell again in December, with the annual decline the biggest since 2008.

The risk of broader contagion in the global financial markets has been averted for now, which allowed central banks in the advanced economies, including the Fed, to increase policy rates this week. The RBA Board minutes confirmed that a pause in tightening is being considered for April. The Judo Bank flash PMIs suggested that the Aussie private sector activity slid back into contraction in March.