Record run over for consumer confidence…for now
Iron ore, coffee & tea exports hit record high
Consumer confidence; CBA card spending; Preliminary trade; Reserve Bank speech
Consumer confidence: After a record 11 successive weeks of gains, the weekly ANZ-Roy Morgan consumer confidence rating fell by 2 per cent to 104.5 (long-run average since 1990 is 112.6). Sentiment is still up by 60 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).
Commonwealth Bank (CBA) card spending: According to the Commonwealth Bank (CBA), card spending in the week to November 20 lifted by 12 per cent on a year ago compared to an 11 per cent lift for the previous week. Spending on services rose 1 per cent from a year ago (previously: flat). But the annual growth rate of goods spending climbed 22 per cent. Annual growth in spending in South Australia fell to 9 per cent last week (previously: +15 per cent) due to the virus lockdown.
Preliminary merchandise trade: In original terms, the value of exports of goods rose by 6.3 per cent to $30.5 billion in October to be 2.9 per cent lower than a year ago. The value of goods imported was up 8.3 per cent to $25.7 billion and was 10.4 per cent lower when compared to a year ago.
Trade surplus and record exports: In the year to October, the goods trade surplus (exports less imports) was $70.3 billion, down from the record high of $87.3 billion in April. The value of iron ore exports hit a record high of $10.9 billion in October. Rolling annual exports of iron ore (metalliferous ores & metal scrap) hit a record $136.6 billion. The value of coffee, tea and spices exports climbed to $448 million on a rolling annual basis in October – also a record high.
Reserve Bank Deputy Governor speech “Monetary policy in 2020”: At the Australian Business Economists webinar. Dr. Debelle said, “The lower borrowing rates will encourage businesses and households to borrow, invest and spend when they are confident about their future prospects. While the news about vaccines should help bolster that confidence, the recovery will be uneven.”
The consumer confidence, card spending and spending intentions figures have implications for retailers, and other consumer-focussed businesses. The trade data gives guidance on future spending (imports) and industry income/profitability (exports). Speeches from the Reserve Bank Deputy Governor can provide guidance on interest rate settings.
What does it all mean?
• South Australia’s hard Covid-19 lockdown may have ended three days earlier-than-scheduled, but the virus ‘flare up’ dented consumer confidence last week. Worries about a virus ‘second wave’ in Adelaide still persist with new ‘active’ cases emerging and some government restrictions remaining in place. ANZ economists reported that South Australia’s consumer sentiment index dropped below the 100-point level – which separates optimists from pessimists.
• While the winning streak for the ANZ-Roy Morgan consumer sentiment index ended after a record 11 successive weeks of gains, confidence could yet boosted by the re-opening of state borders on Australia’s East Coast. NSW and Victoria’s border opened yesterday and Queenslanders will finally welcome Sydneysiders and Victorians from December 1.
• And news overnight that the AstraZeneca-University of Oxford coronavirus vaccine was up to 90 per cent effective – becoming the third inoculation to be effective in trial data – also has the potential to boost sentiment this week.
• Despite the setback in South Australia, Commonwealth Bank (CBA) credit and debit card spending figures were up by 12 per cent on a year ago last week – higher than the 11 per cent growth rate the week before. In November, annual growth in card spending is higher across all states and territories, except South Australia – where the growth rate slipped to 9 per cent from 15 per cent last week. CBA Group economists reported that government restrictions and store closures contributed to declines across almost all spending categories.
• Australia’s political tensions with China have been headline news. But exports to China grew by 7.4 per cent in October to $12.7 billion on the back of our largest trading partner’s insatiable appetite for iron ore. The value of Aussie exports of the steel-making ingredient hit fresh record highs of $10.9 billion in October. On Friday, iron ore futures on the Singapore Exchange hit 6-year highs – within touching distance of US$130 a tonne – on the back of strong Chinese steel mill demand. And the value of Aussie exports of coffee and tea manufactures were also at record high levels in October.
What do the figures show?
Consumer sentiment – Week ended November 22
• After 11 successive weeks of gains the weekly ANZ-Roy Morgan consumer confidence rating fell by 2 per cent to 104.5 (long-run average since 1990 is 112.6). Sentiment is still up by 60 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).
The Commonwealth Bank (CBA) credit card data – Week ended November 20
• According to the Commonwealth Bank (CBA), credit and debit card spending in the week to November 20 lifted by 12 per cent on a year ago compared to an 11 per cent lift for the previous week.
• Over the week, spending on services rose 1 per cent compared to a year ago (previously: flat). And the annual growth rate of goods spending was broadly unchanged, climbing 22 per cent.
• Last week, the strongest annual card spending growth rate was in Tasmania (+20 per cent), followed by Northern Territory (+16 per cent); Western Australia and Queensland (both +15 per cent); NSW, Victoria and the ACT (all +11 per cent); and South Australia (+9 per cent).
Preliminary international trade – October
• According to the Bureau of Statistics (ABS), in original terms, the value of exports of goods rose by 6.3 per cent to $30.5 billion in October to be 2.9 per cent lower than a year ago.
• The value of goods imported was up 8.3 per cent to $25.7 billion and was 10.4 per cent lower when compared to a year ago.
• In the year to October the goods trade surplus (exports less imports) was $70.3 billion, down from the record high of $87.3 billion in April.
• According to the ABS: “Exports of goods in October 2020 increased from the revised September 2020 estimate of $28,736m by $1,796m (6 per cent) to $30,532m.
metalliferous ores increased $833m (7 per cent)
gas increased $360m (18 per cent)
meat increased $217m (21 per cent)
• Australia exported a record $13,465m of metalliferous ores, the majority of which was iron ore (81 per cent), which also reached a record high export value of $10,945m. The record metalliferous ores export value is $658m higher than the previous record high in June 2020.
• The increase in exports of gas is the first month-on-month increase since March 2020. Exports of gas have fallen substantially during 2020 as a result of reduced demand and low global prices.
• Offsetting the increase:
non-monetary gold declined $257m (-12 per cent)
petroleum declined $177m (-24 per cent)
gold coin declined $124m (-57 per cent)
• According to the ABS: “Imports of goods in October 2020 increased from the revised September 2020 estimate of $23,714m by $1,978m (8 per cent) to $25,692m.
road vehicles increased $393m (13 per cent)
telecommunications and sound equipment increased $359m (28 per cent)
• Road vehicle imports saw their fifth consecutive monthly increase since the sharp decline in May 2020 due to the pandemic. Year-on-year, the October 2020 value is $67m (2 per cent) higher than October 2019 and is the highest value since May 2019.
• Within telecommunications and sound equipment, mobile phones increased $270m (111 per cent), predominantly from China, this increase aligns with the release of new mobile phone models.
• Other increases include:
miscellaneous manufactured articles, up $220m (15 per cent)
petroleum, up $179m (11 per cent) and
articles of apparel, up $165m (18 per cent)
• Miscellaneous manufactured articles often increase in the lead-up to Christmas. October 2020 observes a similar increase which coincides with the upcoming release of games and gaming consoles prior to Christmas.
• Within articles of apparel; garments, made up of fabrics of felt or of nonwovens increased $42m (142 per cent). Isolation gowns made up most of this increase, the majority from China and predominantly destined for Victoria.
• Offsetting the increase:
non-monetary gold declined $232m (-33 per cent)
• Year-on-year October 2020 imports have declined $2,988m (-10 per cent) on October 2019, this has been driven by petroleum, down $1,722m (-49 per cent).”
Preliminary trade with China
• Australia’s annual exports to China rose from $145.23 billion in September to $146.73 billion in October. Exports to China are up 1 per cent on a year ago.
• Australia’s annual imports from China edged lower from $82.22 billion in September to $82.10 billion in October. Annual imports were up 4.5 per cent on a year ago.
• Australia’s rolling annual trade surplus with China rose from a 14-month low of $63.02 billion in September to $64.63 billion in October.
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.
• The weekly Commonwealth Bank (CBA) credit & debit card spend data is derived from transaction authorisations to give a near real-time view. This means that cancelled authorisations, refunds, reversals, etc. will not be included. Data has not been adjusted for effects of consumers substituting between cash and card payments. CBA merchant facility spend data is derived from the Merchant Acquiring System which includes net sales from both CBA and Other Financial Institution (OFI) domestic and international cards.
• 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 Reserve Bank Deputy Governor’s speeches enable investors to have more insights on the economy and the operation of monetary policy.
What are the implications for investors?
• The run of Australian economic data has improved – as evidenced by the Citi Economic Surprise index for Australia (chart above). In fact, the last time there were some many Aussie economic data ‘beats’ (releases above surveyed economist’s expectations) was August 2006!
• Reserve Bank Deputy Governor Guy Debelle has outlined why policymakers eased monetary policy three weeks ago. Dr Debelle said that policy measures have lowered interest rates and therefore the borrowing costs and cashflows of Aussie households, businesses and governments. He said, “The lower borrowing rates will encourage businesses and households to borrow, invest and spend when they are confident about their future prospects.” Dr Debelle added: “The fiscal and monetary support will boost spending in the economy. This will increase employment and, in time, reduce unemployment.” But he cautioned, “While the news about vaccines should help bolster that confidence, the recovery will be uneven.”
• Victorian Treasurer Tim Pallas is doing his bit to try and get his state ‘back on track’ after lockdown 2.0. The Treasurer today forecast a budget deficit of $23 billion this fiscal year (2020/21), before reducing the deficit to $6.8 billion by 2023/24. Mr. Pallas has also announced a Victorian jobs target of 400,000 by 2025; waivers of up to 50 per cent on stamp duty for homes valued at up to $1 million until June 2021; 50 per cent stamp duty concession of purchases of commercial and industrial properties brought forward to January 2021; and ‘shovel ready’ infrastructure spending of $19.6 billion over the next four years.
Published by Ryan Felsman, Senior Economist, CommSec