Elevated East Coast petrol prices; Used car prices ease.

Elevated East Coast petrol prices; Used car prices ease

China’s consumer and technology-led recovery

Petrol Prices; Used car prices; Chinese economic data

Fuel prices: The national average price of unleaded petrol rose by 2.0 cents to 121.2 cents a litre last week according to the Australian Institute of Petroleum. Daily unleaded retail petrol prices in Brisbane, Sydney and Melbourne are averaging $1.21-$1.34 a litre today (source: MotorMouth) – remaining in the expensive phase of the cycle. Motorists should top up rather than fill up this week.

Used car prices: According to Datium Insights (based on Pickles auction data), used car prices fell 3.6 per cent last week with ex-Lease (-8 per cent) and Repossessions (-4.8 per cent) leading the decreases.

Chinese economic growth: The Chinese economy (GDP) expanded by 2.7 per cent in the September quarter (consensus: +3.3 per cent) after expanding by 11.5 per cent in the June quarter. GDP grew at a 4.9 per cent annual rate in the year to September (consensus: +5.5 per cent), up from a 3.2 per cent annual growth rate in June. Economic activity expanded by 0.7 per cent in the first nine months of 2020 from a year earlier (consensus: +0.7 per cent).

China monthly activity data: Retail sales expanded at a 3.3 per cent annual rate in September (consensus: +1.6 per cent). Industrial production rose at a 6.9 per cent annual rate (consensus: +5.8 per cent). Fixed-asset investment expanded by 0.8 per cent over the nine months to September from a year ago (consensus: +0.9 per cent). Property investment expanded at a 5.6 per cent annual rate over the year to September (consensus: +5.2 per cent). The unemployment rate (nationwide survey-based jobless rate) fell to 5.4 per cent in September from 5.6 per cent in August (consensus: 5.5 per cent).

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market. The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.

What does it all mean?

• East Coast unleaded petrol prices are still in the most expensive phase of the retail cycle. Motorists should top up rather than fill up their fuel tanks this week. Today, pump prices are averaging 124.2 cents a litre in Sydney, 121.1 cents a litre in Melbourne and 133.8 cents a litre in Brisbane, according to real-time fuel app MotorMouth. Prices have begun easing from cycle peaks, but won’t enter the cheapest phase of the fuel cycle until next week. Last week, Adelaide bowser prices averaged $1 a litre, so East Coast petrol prices could potentially reach these levels again in the coming weeks.

• Fancy buying a used car? After strong increases over the past six months, used vehicle prices have eased. A combination of low new vehicle supply and an increase in used vehicle demand – due to overseas supply disruptions and public health concerns – have supported used car prices. But Datium Analytics today reported that supply rebounded by 18.1 per cent last week due to a “large influx of ex-Lease (+21.6 per cent) and Repossessions (up 44.7 per cent).”

• China remains on track to be the best performing ‘major’ economy this year. In fact, it could be one of the few countries to post an economic expansion in 2020, despite the huge hit from the global pandemic recession. Just last week, the International Monetary Fund (IMF) forecast an expansion of 1.9 per cent this calendar year. The mix of growth contributors is expected to switch from supply-side industrial-led growth to consumption and technological innovation in the coming months – crucial to self-reliance as trade and technology tensions rise between China and other large economies.

• China’s economic recovery continued in the September quarter (up 2.7 per cent), but at a slower pace than economists had predicted (survey: up 3.3 per cent). The 4.9 per cent lift in economic growth (GDP) in the September quarter from a year ago means that China has recovered strongly from its historic contraction in the March quarter when GDP plummeted by 10 per cent to be down 6.8 per cent from a year earlier.

• While developed economies struggle with a ‘second wave’ of COVID-19 – with renewed lockdowns – China continues to manage virus flare ups well. In fact, People’s Bank of China (PBoC) Governor Yi Gang said yesterday, “Right now, China has basically put COVID-19 under control.”

• Encouragingly, today’s September data dump showed a continued ‘V-shaped’ recovery in industrial production and a jump in retail spending due to the Golden Week holiday. Fixed asset investment grew for the first time this year as the supply-side industrial recovery continued. Importantly, the jobless rate fell to 5.4 per cent with China’s National Bureau of Statistics’ spokesperson Ms. Liu suggesting the employment situation had improved “significantly” for graduates in September.

• Monetary policy has taken a back seat with the PBoC relatively restrained when compared to its central bank peers. Instead, fiscal policy has provided most support to the economic recovery, with increased government spending, tax relief and cuts in lending rates and banks’ reserve requirements supporting employment, consumer spending and investment.

• Chinese exports grew by 9.9 per cent in September from a year earlier, lifting in recent months as advanced economies re-opened their economies after virus lockdowns. And imports surged by 13.2 per cent over the period as domestic demand recovered. But there are significant risks to the economic outlook posed by a re-intensification of virus cases in Europe and the US – with virus restrictions threatening demand for Chinese goods. And the US presidential election on November 3 adds another layer of uncertainty amid ongoing trade tensions.

• That said, supreme leader President Xi Jinping has a new ‘visionary’ project in mind to boost spending and investment in China. Last week, President Xi announced accelerated plans to build a merged ‘Greater Bay Area’ megapolis, incorporating a technology hub in Shenzhen, a financial centre (Hong Kong) and gambling enclave (Macau) to rival Silicon Valley, Wall Street and Las Vegas.

What do the figures show?

Weekly petrol prices

• The national average price of unleaded petrol rose by 2.0 cents to 121.2 cents a litre (c/l) last week according to the Australian Institute of Petroleum. Metropolitan prices rose by 2.8 cents to 122.8c/l with regional prices up by 0.6 cents to 118.1c/l.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 2 cents to 130.0 c/l), Melbourne (up by 2.3 cents to 112.9 c/l), Brisbane (up by 13.5 cents to 139.5 c/l), Adelaide (down by 0.1 cent to 103.9 c/l), Perth (down by 0.1 cent to 117.5 c/l), Darwin (steady at 117.6 c/l), Canberra (up by 0.1 cent to 121.0 c/l) and Hobart (down by 0.1 cent to 123.3 c/l).

• The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 16.81 cents to 17.49 cents (24-month average: 15.0 cents a litre).

• The national average diesel petrol price fell by 0.1 cent to 118.8 cents a litre over the past week. The metropolitan price fell by 0.2 cents to 117.4 cents a litre and the regional price was down 0.1 cent to 119.9 cents a litre.

• Last week, the national average unleaded Terminal Gate Price (TGP) was down by 0.4 cents to 103.9 cents a litre. The terminal gate diesel price rose by 1.1 cents to 100.7 cents a litre.

• Today, the average unleaded TGP stands at 103.4 cents a litre, down by 0.6 cents over the week. The terminal gate diesel price stands at 101.2 cents a litre, up 1.1 cents a litre over the week.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 124.2c/litre; Melbourne 121.1c; Brisbane 133.8c; Adelaide 131.1c; Perth 106.2c; Hobart 123.2c; Darwin 117.6c; and Canberra 121.1c.

• Last week the key Singapore gasoline price fell by US$2.05 or 4.3 per cent to US$46.15 a barrel. In Australian dollar terms, the Singapore gasoline price lost US$1.88 or 2.8 per cent to $65.26 a barrel or 41.04 cents a litre.

Used vehicle market – Week ended October 19

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. In the week to October 19, used motor vehicle prices fell by 3.6 per cent after rising 0.7 per cent in the previous week.

• In the latest week supply rebounded 18.1 per cent due to a lift in ex-Lease (+21.6 per cent) vehicles and Repossessions (+44.7 per cent). Clearance rates rose 4 per cent with “more stock available.”

• Prices of ex-Lease vehicles fell 8 per cent with Repossessions down 4.8 per cent. Passenger vehicle prices were down 3.1 per cent.

• By vehicle, Datium reported, “Prices for top 15 traded vehicles were mixed with the Toyota Hiace (up 6.3 per cent) seeing the largest increase and the Holden Commodore (down 5.9 per cent) seeing the largest decrease.”

China economic data – September; September quarter

• The Chinese economy (GDP) expanded by 2.7 per cent in the September quarter (consensus: +3.3 per cent) after expanding by 11.5 per cent in the June quarter. GDP grew at a 4.9 per cent annual rate in the year to September (consensus: +5.5 per cent), up from a 3.2 per cent annual growth rate in June. Economic activity expanded by 0.7 per cent in the first nine months of 2020 from a year earlier (consensus: +0.7 per cent).

• Retail sales expanded at a 3.3 per cent annual rate in September (consensus: +1.6 per cent) after expanding at a 0.5 per cent annual rate in the year to August. Over the year to September, spending rose the most on beverages (up 22 per cent), tobacco & alcohol (up 17.6 per cent) and cosmetics (up 13.7 per cent). But spending on petroleum (down 11.8 per cent), communications appliances (down 4.6 per cent) and at restaurants/catering (down 2.9 per cent) fell most.

• Industrial production rose at a 6.9 per cent annual rate in September (consensus: +5.8 per cent) after lifting at a 5.6 per cent rate in August. Over the year to September, manufacturing output lifted by 7.6 per cent, electricity output rose by 4.5 per cent and mining production lifted 2.2 per cent. Production rose the most for auto manufacturing (up 16.4 per cent), machinery (up 15.9 per cent), metal products (up 12.6 per cent) and general equipment (up 12.5 per cent). Agricultural food processing rose least (up 2.7 per cent) over the year.

• Fixed-asset investment expanded by 0.8 per cent in the nine months to September from a year ago (consensus: +0.9 per cent) after contracting at a 0.3 per cent rate in the eight months to August from a year earlier. Over the period to September, investment by the private sector fell by 1.5 per cent, but investment by state-owned enterprises increased by 4 per cent. By industry, investment in pharmaceuticals (up by 21.2 per cent) and healthcare & social works (up 18.9 per cent) rose most. But investment in car manufacturing (down 16.7 per cent) and metal products (down 12.8 per cent) fell most.

• Property investment expanded at a 5.6 per cent annual rate over the year to September (consensus: +5.2 per cent).

• The unemployment rate (nationwide survey-based jobless rate) fell to 5.4 per cent in September from 5.6 per cent in August (consensus: 5.5 per cent).

What is the importance of the economic data?

• Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for investors?

• Global oil producers – OPEC and key alliance partner Russia – gather today to assess the current state of the crude market. Benchmark Brent and US Nymex oil prices have been stable in recent weeks hovering around US$40 a barrel. But the virus ‘second wave’ in Europe and the US threatens to weigh on crude demand. And with Libyan supply increasing to around 500,000 barrels a day (following the civil war ceasefire) other OPEC+ producers are increasingly concerned about a relapse in crude prices.

• With demand for crude recovering, oil producers eased production cuts by around 2 million barrels per day with an additional 1.9 million barrels slated by January. While high level talks are already underway between Saudi Arabia and Russia, the next official OPEC+ ministerial meeting is scheduled for December 1. With a potential crude surplus looming, plans to pullback on production cuts are expected in a further attempt to support oil prices.

• Rising political and trade tensions between Australia and its largest trading partner, China, are becoming increasingly evident in trade data. In fact, China’s imports from Australia fell by 9.5 per cent over the year to September. Demand for iron ore remains robust. But unsettling exporters are reports that China has recently suspended purchases of Aussie coal, while also instructing spinning mills to avoid using Australian cotton. The timing isn’t ideal given that China’s economic recovery is arguably the strongest globally. Bloomberg economists have calculated that China’s share of global growth will lift to 27.7 per cent by 2025 from 26.8 per cent in 2021.

Published by Ryan Felsman, Senior Economist, CommSec