Straya T’day 10/9/2014

Confidence Ebbs

The NAB Monthly Business Survey for August was released yesterday, and showed a moderation in sentiment from last month’s strong result.

NAB monthly biz

As in the Roy Morgan survey, NAB’s continues to show the finance and insurance sector, as well as the real estate sector, tearing it up, countering ongoing weakness elsewhere. Notably, the survey found a “sharp decline in profits and sales” leading to the lower result, though both remain positive.

Overall the survey is consistent with a gentle if fairly uninspiring expansion in activity.

Sadly the news wasn’t so sanguine on the consumer confidence front. Consumer sentiment was poleaxed in the wake of the first Abbott/Hockey budget. There have been signs of a thawing lately, but this survey pours cool water on that promise.

Main takeaways:

  • Federal Budget concerns remain at the forefront. This is likely to be an issue going forward since the recent drop in iron ore, if sustained, will further weigh on budget revenues. The Mid-Year Economic and Fiscal Outlook at the end of the year could therefore see a further exacerbation of budget worries.
  • The five year economic outlook took a beating, indicating that households are cognisant of the problems unfolding due to the passing of the twin terms-of-trade and investment booms.
  • Consumers expect further gains in house prices, however there was a dive in the proportion of respondents agreeing that is good time to buy a house. The housing market is entering treacherous waters.

Not good news, and if it translates to more scrimping by consumers, will weigh on business sentiment.

Iron ore 

More harrowing news on iron ore, I’m afraid, with spot dropping to $82.22. This was in spite of a big bounce in Dalian futures after an absolute hammering in early trade. The market is fishing for bottom, but unfortunately that’s going to be difficult to find while steel keeps bleeding; until there is a material improvement in Chinese steel prices, spot iron ore can happily continue the slide. And there is little to arrest the decline in steel demand as long as the property sector continues to reel.

Employment, Ahoy!

The big release tomorrow is employment. The market will be looking for a solid improvement, with expectations for a gain of 15k jobs over the month and confirmation that the last unemployment figure was largely a statistical aberration. The Aussie battler has copped a hiding this week, crashing out of its multi-month range.

chart

The market is very long, and the .9200 level very important. Tomorrow’s employment data is therefore about as critical as you get. If it beats strongly, the market will gleefully gobble up the battler and we can probably put this down to a false break. If, on the other hand, it misses, the chance of a big move lower is high.

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