By Steven Levine, Senior Market Analyst, Interactive Brokers

Australia’s Housing Market Shakes its Foundations

The week ahead in the Asia-Pacific region will be somewhat light on economic releases, however, several updates are due out of Australia, including business and consumer confidence, as well as housing data.

The fresh reports fall at the heels of the Reserve Bank of Australia’s decision Tuesday to leave its cash rate unchanged at 1.5%.

RBA governor Philip Lowe cited lingering uncertainties over global trade tensions and highlighted China’s efforts to ease its financial conditions, partly in response to its slowing economy.

On the domestic front, the RBA pointed out that while the Australian labor market remains “strong,’ other indicators suggest growth slowed over the second half of 2018.

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The country’s growth outlook is being buttressed by rising business investment, higher levels of spending on public infrastructure and increased employment. However, uncertainties continue to include weak growth in household income and falling housing prices in some cities.

The latest reading of the Westpac-Melbourne Institute Index of House Price Expectations dropped 8.4% to 87.8, marking a new record low since May 2009, when the index had begun compiling.

Meanwhile, the RBA said inflation remains “low and stable.” The central bank expects underlying inflation to “pick up over the next couple of years, with the pick-up likely to be gradual and to take a little longer than earlier expected.”

Overall, the low level of interest rates is continuing to support the Australian economy.

Marc Chandler, the chief market strategist at Bannockburn Global Forex, noted that the RBA’s decision to leave rates unchanged was unsurprising. He said that despite the central bank’s “claims of neutrality, the market is gradually pricing in a greater chance of a cut in the second half.”  

The composite PMI slid further into contraction territory to 49.1 from the 49.7 flash reading and down from 51.3 in January. Furthermore, Australia’s net exports shrank 0.2% in the fourth quarter of 2018 –worse-than-expected, and likely due to challenges in China’s economy.

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Chandler added that the Australian dollar Wednesday was sold to nearly $0.7065, its lowest level since February 12, with resistance now seen in the $0.7090-$0.7100 area.

Against this backdrop, investors will be looking at Australia’s data closely for any signs of further weakness.

The week gets underway with—

Monday, March 11

• NAB Monthly Business Survey (Feb)

National Australia Bank (NAB) is set to release its Monthly Business Survey for February after conditions staged a “moderate rebound” in the prior month from year-end 2018.

Alan Oster, NAB group chief economist noted that while “the aggregate rebounded in January, retail business conditions remain weak.” He observed that car sales and household goods continue to show “the weakest and falling conditions in our survey – this is consistent with the broader macro story at present.”

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Tuesday, March 12

• Westpac Consumer Confidence (Mar)

Australia will also unveil consumer confidence data for March after the Westpac-Melbourne Institute Index of Consumer Sentiment rose 4.3% to 103.8 in February from 99.6 in January.

Matthew Hassan, Westpac senior economist, said sentiment had “recovered after a shaky start to the year.”

The previous survey in January had shown a sharp pullback, dipping into pessimistic territory for the first time since late 2017. Hassan noted that the lift in the February Index takes it “back into ‘cautiously optimistic’ territory,” due in part to the recent shift in the RBA’s tone in terms of its more evenly balanced view on the future of interest rate moves.

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Sunday, March 17

• Housing Industry Association (HIA) New Home Sales (Feb)

Also on the radar, the HIA will provide new home sales data for February over the weekend.

HIA New Home Sales fell again in January by 1.8%, and by 16.4% quarter-on-quarter – taking sales to their lowest level since late 2012.

HIA said that the acceleration of the decline in new house sales in early 2018 fed into a slowdown in building approvals in the second half of the year, and recent sales declines will similarly emerge in building approvals in the first half of 2019.

New house sales have been trending downwards nationally since the end of 2017.

HIA partly attributes the sour housing environment to a credit squeeze, which has been largely driven by banks’ lending practices. It appears APRA’s macro-prudential measures have helped to blow out the time it takes to get a loan approved from around two weeks to two months, with half of the loans rejected, up from 15% before the squeeze.

Monday, March 18

• RBA Meeting Minutes

Investors Monday may glean further insights into the RBA’s decision when the central bank releases its meeting minutes.

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.