Australia: Economic activity supporting hawks – TDS

Annette Beacher, Chief Asia-Pacific Macro Strategist at TDS, notes that Australia’s Dec qtr GDP rebounded by +1.1%/qtr (Q3 unchanged at –0.5%/qtr) outpacing most analyst estimates as well as the RBA’s implied forecast of +0.8%/qtr.

Key Quotes

“Combined with several other upbeat activity prints, the AUD reversed last night’s sell-off, and the 3-10s yield curve has bearsteepened via 10yr yields +7bp.”

“What was highly unusual (and welcome) about this report was strong growth experienced in prices and volumes, last seen in mid-2011, and before that, Mar qtr 2008.”

“GDP expanded by 2.4% in 2015 and 2.5% in 2016, below the accepted 2¾% estimate of trend growth. Our tracking for 2017 is for more of the same 2.6%, and we forecast a return to above-trend 3% for 2018, as does the RBA.”

“Today is a good day for TD’s out of consensus RBA-tohike-in-November base case, as this strong GDP report was accompanied by (1) strong Feb manufacturing PMI print (59.3); (2) an outsized jump in Feb house prices (to be +11.7%/yr) and (3) Feb Chinese manufacturing PMIs outpaced expectations (official 51.6 and Caixin 51.7).”

“We turn to tomorrow’s Jan trade surplus (TD +$A3.5b, mkt +$A3.8b) and Jan building approvals (TD +0.5%, mkt –0.5%) for more Mar qtr activity updates.”