Australia: Labour market indicators dominated the data flow over the week - Deutsche Bank

The data flow over the week in Australia has been dominated by labour market indicators and notwithstanding robust employment growth over the year to July of 2.0%, the wage price index remains at very weak levels – with the yearly increase in the series holding at its record low of 1.9%, explains the analysis team at Deutsche Bank.

Key Quotes

“We see no disconnect at all between the robustness in employment growth and the weakness in wages growth. The strength in employment growth (and hours worked) is likely to leave productivity growth around zero in the June quarter national accounts. That weakness in productivity growth in turn makes it difficult to see much of a lift in wages growth (outside of some noise associated with increases in award and minimum wages).”

“Elsewhere the minutes of the August RBA Board meeting noted that the housing market continued to "warrant careful monitoring", as house price growth in Sydney and Melbourne "had remained relatively strong". While we continue to see the RBA on hold over 2017, 2018 and at least the first half of 2019, risks to that view being wrong are more likely to come from the RBA adopting a ‘broader’ monetary policy mandate (i.e. an even greater focus on financial stability) than a surge in wages or prices in our view.”

“July data for China generally disappointed expectations, suggesting the AUD could come under pressure. Export growth dropped to 7%, from the doubledigits, and both industrial production and fixed asset investment fell. But there were some brighter spots - total social financing growth rose, and broad liquidity conditions do tend to be supportive for commodity prices. Further, leading indicators from the OECD and China stats agency bode well. Perhaps most interesting is that Asian company earnings revisions remain very robust, and they tend to lead the broader Asian export cycle by six months. We expect domestic weakness, rather than a slowing in China, to weigh down the AUD going into year-end.”