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Sunday 22

July, 201811:09 AM



Weekly consumer sentiment slips

Weekly consumer sentiment slips

The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 121.4.

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26.06.2018 03:54 PM

Consumer views on the economy: second best ever
Consumer sentiment

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 121.4. Confidence is up by 6.0 per cent over the year and above the average of 113.9 since 2014 and average of 112.9 since 1990.

Positive views on current economic conditions: Consumer views on current economic conditions (for the next year) rose by 5.1 per cent to 116.5 points last week – the second highest level on record. 

What does it all mean?

Consumer confidence is the best in four months at 120.8 points if you focus on the 4-week moving average (in smoothed terms) of the ANZ-Roy Morgan weekly index. And consumer views on (current) economic conditions over the next year is the second best on record.

And why wouldn’t it be? The pessimists choose to focus on slowing home prices in Sydney and Melbourne, elevated household debt and slow wages growth. But the economy grew at its best quarterly rate in six years in the March quarter and we’ve had job gains in 19 out of the past 20 months. Business conditions are near record-highs. And activity in the mining sector is pickingup with a surge in investment and new deals being announced.

And let’s not forget the sharemarket. Yes, Aussie wealth is also accumulated through share ownership, not just residential housing. Last week the Aussie sharemarket reached the highest level in 10½ years, despite “risk-off” sentiment associated with US-Sino trade tensions. The ASX200 index is up by 3.7 per cent so far in June, outperforming the US Dow Jones index which is down by 1.6 per cent (both in local currency terms to June 25).

The most obvious catalyst for our share market outperformance has been the falling Aussie dollar, which has dropped 4.5 per cent since the US dollar began appreciating on April 16. The ASX200 index is up by 6.3 per cent over this period, boosting the appeal of companies with offshore earnings like Macquarie Bank and Aristocrat Leisure.

Also, Aussie interest rate expectations have been pared back with markets (i.e. overnight index swaps rate) only pricing in one rate hike by November 2019. And the Aussie 10 year government bond yield has fallen by around 30 basis points since mid-May, boosting interest rate proxies such as Scentre Group and Transurban.

We’ve also seen a bit of a relief rally for the oversold big four Aussie banks. And Chinese consumer-facing companies like Bellamy’s, Treasury Wine Estates, Bega Cheese and Blackmores have rallied on increased expectations for Chinese liquidity and policy support.

What do the figures show?
Consumer Sentiment

The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 121.4. Confidence is up by 6.0 per cent over the year and above the average of 113.9 since 2014 and average of 112.9 since 1990.

Two components of the index increased last week:

The estimate of family finances compared with a year ago was up from +103.8 to +106.7;

The estimate of family finances over the next year was down from +132.5 to +123.9;

Economic conditions over the next 12 months was up from +110.9 to +116.5;

Economic conditions over the next 5 years was unchanged at +117.0;

The measure of whether it was a good time to buy a major household item was down from +146.3 to +143.0.

The measure of inflation expectations fell from 2½-year highs of 4.8 per cent to 4.4 per cent.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

Consumer confidence is still elevated. The number of optimists outweigh the number of pessimists. Economic data releases were scant last week, but most focus was on the Bureau of Statistics’ March quarter residential property data. Aussie households are clever enough to know that home prices are cooling in Sydney and Melbourne after a period of stellar, if not unsustainable growth.

Confidence is holding-up in the face of negativity about home prices, trade tensions, slow wages growth, elevated petrol prices and mortgage debt.

Solid economic growth, robust business activity data and the passing of the Turnbull government’s personal income tax cuts legislation have lifted spirits. Jobs growth is still strong, but goods prices remain low. Interest rates won’t lift in the near-term.

Household consumption remains a key uncertainty for the monetary policy outlook. The recent uplift in the Aussie sharemarket is timely as it appears that wealth accumulation from residential housing has peaked for now. Total returns from shares should continue to outperform residential property.

CommSec expects interest rates to be unchanged until at least February 2019.

Published by Ryan Felsman, Senior Economist, CommSec
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