Post-election boost for shares
Domestic travel slumps; Petrol hits 6-month high
Petrol prices; Domestic air travel; Housing affordability
Weekly Petrol Price: According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 3.7 cents in the past week to a 6-month high of 152.8 cents a litre.
Election aftermath: The CommSec assessment of the Federal Election result was published yesterday .
Election & financial markets: The Aussie dollar spiked half a cent higher this morning to near US69.4 cents before easing. The ASX 200 share index lifted more than 100 points (1.6 per cent) at the start of trade.
Fewer people flying: There were 5.28 million passengers carried on Australian domestic commercial aviation (including charter operations) in March 2019, a decrease of 2.8 per cent on March 2018. Rolling annual passenger growth on the Sydney-Melbourne route is at 4½-year lows.
Housing affordability: The Housing Industry Association reported that HIA Affordability Index rose by 2.2 per cent in the March 2019 quarter – the strongest gain in 5½ years.
Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Domestic aviation data is a key indicator for airline and airport performance as well as the broader economy.
What does it all mean?
• The terminal gate or wholesale unleaded petrol price in Australia is just below 134 cents a litre. Add to that a gross retail margin of 10-12 cents a litre and this suggests that motorists should be paying around 150 cents a litre at the petrol pump. The national prices is a touch higher due to the ending of discounting cycles in Sydney and Brisbane.
• Global oil prices closed slightly lower on Friday. Investors monitored developments in the China-US trade dispute as well as the tensions between the US and Iran. The Brent crude price fell by US41 cents or 0.6 per cent to US$72.21 a barrel. And the US Nymex fell by US11 cents or 0.2 per cent to US$62.76 a barrel. But over the week Brent rose by 2.3 per cent and Nymex was up by 1.8 per cent.
• In Asian trade today, Brent and Nymex crude prices lifted by 1.0-1.5 per cent. Tensions continue in the Middle East between Iran and the United States. Reuters reported “a rocket was fired into the Iraqi capital Baghdad’s heavily-fortified Green Zone, which houses government buildings and foreign embassies, on Sunday but caused no casualties, the Iraqi military said.”
• Following Saturday’s Coalition election victory, the Aussie dollar kicked higher this morning from near US68.70 cents to almost US69.40 cents. The currency has since retreated to US69.2 cents. The Australian sharemarket lifted by more than 100 points at the start of trade today after the Morrison government election victory meant that there would be no change to the tax policies affecting franking credits and the negative gearing of residential property.
• The economy clearly lost momentum over the election period and this has showed up in domestic air travel data. Passenger numbers have dropped in annual terms for four straight months. And on the key Melbourne-Sydney route, passenger numbers are growing at the slowest rate in 4½ years. With the election out of the road, and with airlines trimming fares, business passenger numbers are expected to strengthen in coming months.
What do the figures show?
• According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 3.7 cents to 152.8 cents a litre in the past week. The metropolitan price rose by 5.2 cents to 154.4 cents a litre with the regional price up by 0.8 cents to 149.5 cents a litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 14.1 cents to 154.4 c/l), Melbourne (down by 3.9 cents to 152.7 c/l), Brisbane (up by 19.1 cents to 163.3 c/l), Adelaide (down by 14.1 cents to 148.3 c/l), Perth (up by 0.9 cents to 150.3 c/l), Darwin (down 0.1 cents to 144.8 c/l), Canberra (down by 0.1 cents to 147.3 c/l) and Hobart (up by 0.2 cents to 154.3 c/l).
• The national average diesel petrol price rose by 0.3 cents a litre to 151.2 cents a litre over the week. The metropolitan price rose by 0.4 cents to 150.5 cents a litre with the regional price up by 0.2 cents to 151.7 cents a litre.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 133.7 cents a litre, up only 0.1 cents over the week. The terminal gate diesel price stands at 140.1 cents a litre, up by 0.6 cents over the past week.
• Last week, the key Singapore gasoline price rose by US$3.15 or 4.1 per cent to US$80.50 a barrel. In Australian dollar terms, the Singapore gasoline price rose by $4.50 or 4.1 per cent last week to $115.08 a barrel or 72.38 cents a litre.
• MotorMouth records the following average retail prices for capital cities today: Sydney 156.6c; Melbourne 146.6c; Brisbane 160.7c; Adelaide 139.8c; Perth 139.8c; Canberra 147.1c; Darwin 144.7c; Hobart 153.8c.
• There were 5.28 million passengers carried on Australian domestic commercial aviation (including charter operations) in March 2019, a decrease of 2.8 per cent on March 2018.
• There were 5.06 million passengers carried on regular passenger transport (RPT) flights in March 2019, a decrease of 3.1 per cent on March 2018. This was the fourth consecutive monthly decrease in the number of RPT passengers. For the year ending March 2019 there were 60.88 million RPT passengers, an increase of 0.7 per cent on the year ending March 2018 – slowest growth in more than three years (38 months).
• Capacity, measured by available seat kilometres (ASKs), decreased by 1.5 per cent compared with March 2018 to a total of 7.27 billion. With RPT passenger traffic decreasing at a faster rate than capacity the industry wide load factor (RPKs/ASKs) decreased from 80.4 per cent in March 2018 to 78.7 per cent in March 2019.
• On the key Melbourne-Sydney route, passenger numbers were down 1.8 per cent on a year ago. On a rolling annual total (smoothed) basis, annual passenger growth was just 0.6 per cent – a 4½-year low.
• The Housing Industry Association (HIA) Affordability Index rose by 2.2 per cent in the March 2019 quarter – the biggest rise since September quarter 2013.
• The HIA Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments.
• Five of the eight capital cities saw improved affordability over the year to March 2019. Sydney posted the biggest rise, up by 12.4 per cent. This was followed by Melbourne (+9.6 per cent), Perth (+7.7 per cent), Darwin (+5.9 per cent) and Brisbane (+2.5 per cent). Affordability, however, deteriorated in Hobart (-5.1 per cent), Canberra (-5.1 per cent) and Adelaide (-1.1 per cent).
What is the importance of the economic data?
• Weekly figures on petrol prices 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.
• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases data on domestic and international aviation each month. The data is useful in tracking consumer spending and airline performance as well as broader economic activity.
• The Housing Industry Association publishes a quarterly index of housing affordability. If homes are more affordable this can lead to increase buying and lending activity.
What are the implications for interest rates and investors?
• The Opposition Labor Party had proposed changes to the tax policies affecting negative gearing of residential property and dividend imputation or franking credits. The surprise victory by the ruling Coalition Government has clearly removed those fears. In response, investors have again embraced bank shares with the major banks today lifting by 5-8 per cent. Shares in Medibank have lifted by around 10 per cent. The Labor Opposition had proposed to limit premium increases by health insurers.
• Petrol prices are unlikely to recede markedly anytime soon. Sabre-rattling in the Middle East continues. And key oil producers are still keen on maintaining crude prices at current levels. The lower Aussie dollar is doing no favours for motorists, especially as Australia is a net importer of refined oil product.
• A key measure of economic activity is the growth of airline passenger numbers – especially the key business route between Sydney and Melbourne. An expected lift in passenger numbers post-election will be a signal of generally firmer economic momentum.
• Financial markets have priced in a rate cut for the June Reserve Bank Board meeting. A speech by the Reserve Bank Governor on Tuesday will be closely assessed.
Published by Craig James, Chief Economist, CommSec