Asia-Pacific: The Week Ahead (Feb. 18-22) Shifts In The Land Down Under

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Includes: AUSE, BHPBF, BXBLY, CROC, DAUD, EWA, EWAS, FAUS, FLAU, FXA, HAUD, IAF, UAUD
by: Interactive Brokers
Summary

Activity on the Asia-Pacific calendar will continue to gather momentum in the week ahead, with several updates on Australia’s economic health, including its manufacturing and employment situations.

RBA Governor Philip Lowe observed that "some downside risks have increased," including weaker-than-expected GDP growth, due largely to a deceleration in household consumption and income.

The RBA said that rate-setting risks have "shifted to be more evenly balanced," compared to the previous tightening policy bias the central bank has held.

The shift in the RBA's position has helped drive down the value of the Australian dollar.

Meanwhile, materials sector giants Brambles and BHP Group are set to announce earnings.

Activity on the Asia-Pacific calendar will continue to gather momentum in the week ahead, with several updates on Australia's economic health, including its manufacturing and employment situations.

Monday, February 18

  • Reserve Bank of Australia's (RBA) Meeting Minutes

The RBA at its monetary policy meeting earlier in February elected to keep the cash rate at 1.5%, where it's been since August 2016.

RBA Governor Philip Lowe noted that Australia's economy is set to grow by around 3% in 2019 and by a little less than that figure in 2020, mainly due to slower growth in exports of resources. The growth outlook, he said, is being supported by rising business investment and higher levels of spending on public infrastructure.

However, Lowe also observed that "some downside risks have increased," including weaker-than-expected GDP growth in the September quarter on the back of a deceleration in household consumption and income. Lowe added that the main domestic uncertainty continues to concern the outlook for household spending and the effect of falling housing prices in some cities such as Sydney and Melbourne.

At its recent meetings, the central bank said it has paid special attention to developments in the nation's housing market, as well as how lower prices may impact construction activity and households' spending decisions. The RBA has also considered how the prospects for consumption growth would be affected if household income growth does not accelerate.

The RBA concluded that in light of recent data, as well as inherent outlook uncertainties, rate-setting risks have "shifted to be more evenly balanced" compared to the previous tightening policy bias the bank had held. The Board said it does not see "a strong case to adjust the cash rate in the near term" and will maintain its medium-term focus.

Marc Chandler, chief market strategist at Bannockburn Global Forex, recently noted that with the shift in the RBA's position having become "increasingly clear," it culminated in a cut in its GDP and inflation expectations, which helped drive the Australian dollar to its lowest level in more than a month (~$0.7060).

Chandler observed that the RSI is "overextended, but the Slow Stochastics show a bearish divergence and the MACDs crossed lower at the start of last week." He added that the Aussie has entered a band of congestion that extends to $0.7000, and while the "surge in the price of iron ore" has done the Australian dollar "little good," if it ticks higher "some will try to make the link."

The chart above, which was created using the IBKR Trader Workstation (TWS), illustrates the downward movement in the pair, as well as 50- and 200-day SMAs, RSI, Slow Stochastics and MACD trends.

Against this backdrop, the RBA is slated Monday to release the minutes from its meeting, whereby market participants may receive further clues into the Board's decision and outlook for the country's economy.

Wednesday, February 20

  • Commonwealth Bank of Australia Manufacturing PMI (Flash - Feb.)
  • Employment Situation (Jan.)

Meanwhile, Australia will offer mid-week reports on manufacturing and employment.

The country Wednesday will unveil a flash reading of its manufacturing PMI for February.

Australia's manufacturing industry expanded further at the start of 2019, albeit at a slightly slower pace from the prior month.

According to the Commonwealth Bank of Australia and IHS Markit, while "the improvement in the health of the sector was the slowest for five months, growth of production and sales remained solid." Furthermore, strong business confidence also supported job creation and inventory accumulation. However, the inflation picture in January was "mixed" amid an uptick in input price inflation, while output charges rose at a slower pace.

The headline index from the survey, the seasonally adjusted Commonwealth Bank Manufacturing Purchasing Managers' Index (PMI), was at 53.9 in January, down slightly from 54.0 in December and the lowest level since August 2018.

Also Wednesday, Australia will provide an update on its employment situation for January.

The country has been touting ongoing improvements in its labor market, with its unemployment rate averaging 5% in the December quarter amid rising employment.

The RBA observed "especially positive" conditions in New South Wales and Victoria, where unemployment rates have receded to a range of between 4% and 4.5% and forward-looking indicators continue to point to "above average" employment growth in coming months.

Consistent with the gradually tightening labor market, growth in wages has ticked up in recent quarters, with fewer workers subject to wage freezes than in recent years.

Materials Sector Earnings

On the corporate front, several Australian companies are lined up in the week ahead to announce earnings, including materials sector giants Brambles (OTCPK:BXBLY) [ASX: BXB] and BHP Group (OTCPK:BHPBF) [ASX:BHP] in the front part of the week.

Note: This material was originally published on IBKR Traders' Insight on February 13, 2018.

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