The Bull

Thursday 17

January, 2019 4:40 PM



International trade

International trade

The trade surplus decreased from a revised $2,013 million in October (previously $2,316 million) to $1,925 million in November.

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08.01.2019 03:45 PM

Record trade with China
Weaker Aussie dollar weighs on consumers
International trade; Consumer sentiment; Job advertisements

Trade surplus: The trade surplus decreased from a revised $2,013 million in October (previously $2,316 million) to $1,925 million in November (consensus: +$2,175m). It was the 11th successive surplus in 2018.

Trade with China: Both Australia's exports to China and Australia’s imports from China were at record highs in the year to November. China now accounts for a record 34.1 per cent of Australian exports.

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.2 per cent to 115.2. Still, the index remains above the average of 114.3 held since 2014 and is higher than the longer term average of 113.0 since 1990.

Job advertisements: ANZ job advertisements were flat in December, but ads are still up by 4.1 per cent over the year at 175,428 - just below 7-year highs of 178,879 ads. 

What does it all mean?

China and the US may be locked in a trade dispute, but in Australia, two-way trade with China is going gangbusters. Both the goods we receive from China and the exports we send to China hit record highs over the year to November. And both exports are imports are growing at a double-digit annual pace. At the height of the Japan-Australia trading relationship, exports to Japan accounted for 28 per cent of total Australian exports. Australia is more invested now in China, and so the health of the Chinese economy is super-important to Australian businesses.

The Aussie dollar dipped by 3.5 per cent to US67.41 cents in intraday trading on January 3 – the lowest level since 2009. Some are blaming regulatory changes for reduced market liquidity. Others suggest that Mrs Watanabe (retail Japanese investors) sold down their long (overweight) positions in the Aussie dollar as the Japanese Yen strengthened on risk
aversion following Apple’s profit warning. Either way, contracting China manufacturing activity and the weaker Chinese Yuan are factors behind the weaker Aussie, combined with rising interest rate differentials between the US and Australia.

The Aussie dollar has since rebounded to around US71.50 cents, but last week’s currency weakness would have weighed on the confidence of Aussie households heading overseas on holidays, or purchasing goods sourced overseas.

On a brighter note, household’s views on their financial situation over the next year improved, lifting to the highest level in three months. Interest rates remain anchored at record lows, jobs growth is solid and wages are gradually lifting. The unemployment rate of Greater Sydney (4.3 per cent) is at a decade low and Greater Melbourne’s (5.2 per cent) jobless rate is lowest in almost seven years, supporting consumer sentiment in the face of falling home prices.

What do the figures show?
International trade

The trade surplus decreased from a revised $2,013 million in October (previously $2,316 million) to $1,925 million in November (consensus: +$2,175m). It was the 11th successive surplus in 2018. The rolling annual surplus rose from $14.46 billion to $16.35 billion – the highest level in 13 months.

Exports of goods and services rose by 1.4 per cent (goods also rose by 1.6 per cent).

Imports of goods and services rose by 1.7 per cent (goods rose by 2.3 per cent).

Exports were up by 20.7 per cent on a year ago (strongest growth rate in 17 months), while imports were up 14.9 per cent (strongest growth rate in 6½ years).

Rural exports fell by 0.9 per cent. Rural exports fell due to a $33 million fall in “Other” rural goods (including sugar) and a $30 million decline in wool and sheepskins exports.

Non-rural goods fell by 0.7 per cent. But gold exports rose by 59.6 per cent in November after falling by 23.7 per cent in October. Non-rural exports fell primarily due to a $543 million decrease in coal, coke and briquettes. But metal ores and minerals exports lifted by $317 million and “Other” mineral fuels rose by $90 million.

Within imports, consumer imports rose by 2.3 per cent; capital goods imports rose by 6.5 per cent, but intermediate goods imports fell by 0.2 per cent.

Consumption goods imports were up by 6.4 per cent on a year ago, capital goods imports lifted by 23.7 per cent and intermediate goods imports were up by 22.1 per cent.

The net services deficit contracted from $182 million in October to $103 million in November.

Australia's annual exports to China rose from $112.38 billion in October to $115.59 billion in November – a new record high. Exports to China are up 14.6 per cent on a year ago. Exports to China account for 34.1 per cent of Australia's total exports – a new record high.

While India’s share of Australian exports hit a 19-month low of 4.9 per cent, Japan’s share of Australian exports rose to a 3-year high at 16 per cent.

Australia's annual imports from China rose from $73.33 billion to $74.63 billion – a record high. Annual imports were up by 18.6 per cent on a year ago. Imports from China
accounted for 24.48 per cent of Australia's total imports – a record high.

Australia's rolling annual trade surplus with China rose from $39.05 billion to a 4½-year high of $40.96 billion in November.

Australia's rolling annual trade deficit with the US rose from $18.26 billion to $18.29 billion. Imports from the US accounted for 10.15 per cent of total imports in November,
just above the record low of 9.88 per cent in June.

Consumer Sentiment

The ANZ-Roy Morgan consumer confidence rating fell by 2.2 per cent to 115.2 in the past week. The index is above both the average of 114.3 held since 2014 and the longer-term average of 113.0 held since 1990.

Four out of five major components of the index decreased last week:

The estimate of family finances compared with a year ago was down from +110.7 to +105.9;

The estimate of family finances over the next year was up from +126.3 to +127.7;

Economic conditions over the next 12 months was down from +105.9 to +101.5;

Economic conditions over the next 5 years was down from +114.6 to +111.0;

The measure of whether it was a good time to buy a major household item was down from +131.4 to +130.0.

The measure of inflation expectations fell from 4.3 per cent to 4.2 per cent.

Job advertisements

ANZ job advertisements were flat in December, but ads are still up by 4.1 per cent over the year at 175,428 - just below 7-year highs of 178,879 ads set in May. In trend terms, job ads fell 0.1 per cent in December to be up by 1.5 per cent on a year ago.

What is the importance of the economic data?

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

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.

The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

Australia continues to record trade surpluses in a difficult external environment. Trade tensions between the US and China are slowing global trade volumes, weighing on economic growth and external demand, hurting exportorientated economies. But weakening domestic demand has not impacted China’s insatiable appetite for Aussie resource and services-related goods, with imports from Down Under at fresh record highs.

While the drought is impacting rural exports, services exports are at record high levels. The weaker Aussie dollar continues to play its part on behalf of Aussie exporters.

Aussie households remain cautious. Data from ANZ-Roy Morgan shows that it was the first decline in consumer confidence over the first week of a New Year since the weekly series commenced in late 2008. Newsflow to start 2019 has been pessimistic, focusing on slowing global growth, US-China trade tensions, falling Aussie home prices, US political uncertainty and sharemarket losses in 2018.

Solid job creation and gradual wages growth remain key to continued consumer resilience in the face of housing market headwinds this year.

CommSec expects interest rates to be unchanged for the foreseeable future.

Published by Ryan Felsman, Senior Economist, CommSec
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