This week in finance: Why is Australian business optimistic when consumers are not?

Updated

September 10, 2017 06:00:37

Wall Street battened down the hatches on Friday as Hurricane Irma swept up towards Florida and North Korea prepared some industrial scale fireworks for the 69th anniversary of Kim family domination.

The S&P500 edged down a tad, while the Nasdaq had a rougher time as Apple and Facebook were sold off.

Markets on Friday’s close:

  • ASX SPI 200 futures flat at 5,667, ASX 200 [Friday’s close] -0.3pc at 5,672
  • AUD: 80.58 US cents, 66.94 euro cents, 61.05 British pence, 86.82 Japanese yen, $NZ1.11
  • US: Dow Jones flat at 21,797, S&P500 -0.1pc at 2,461 NASDAQ -0.6pc at 6,360
  • Europe: FTSE -0.3pc at 7,378 DAX +0.1pc at 12,304 Eurostoxx50 flat at 3,447
  • Commodities: Brent oil -1.3pc at $US53.78/barrel, Gold -0.2pc at $US1,346/ounce, Iron ore [Nymex] -0.8pc at $US75.36/tonne

The blue chip Dow Jones rose marginally, oddly enough hauled up by a solid gain in insurance stocks, even though a series of brutal hurricanes were building up in the Atlantic.

Buying straw hats in winter is one thing, but insurance shares in the face an increasingly regular “one-in-a-hundred-year” hurricanes, while nuclear warheads are primed on the other side of the planet, seems counter-cyclical in the extreme.

Markets were expecting — but not overly fussed about — another North Korean nuclear test to mark the nation’s Foundation Day. It generally lets one rip on special days, such as July 4 as a gift to the US.

However, the latest offer to broker a peace between North Korea and the US by the only person on the planet who could lay a claim to being a “bestie” with both Donald Trump and Kim Jong-un was more unexpected.

The intervention by the entirely odd, former professional basketballer Dennis Rodman was unlikely to be any less effective than the collective diplomatic might of the UN, and weird just might work. It is that sort of world.

The market may recall Rodman’s former teammate Michael Jordan teaming up with Bugs Bunny in Space Jam to save the world 20 years ago, and think “Hell yeah, genius” — problem solved and plough in with ears pinned back.

Alternatively in a saner, not loading up on insurance shares ahead of Florida being wiped out moment, traders may wearily think, “Is this really where we’re at?” and sell.

Despite all that, Wall Street managed a reasonable 0.4 per cent gain over the week, Europe and China were flattish and ASX’s 0.9 per cent loss was only exceeded by a 2 per cent retreat in Japan after a missile sailed overhead.

Business vs the consumer

One of the peculiarities of the Australian economy will be on display again this week — buoyant business sentiment and very glum customers.

The NAB publishes its respected business confidence and conditions surveys on Tuesday. Both measures improved in July and both are well above their long term average.

Westpac, in collaboration with the Melbourne Institute, released its monthly survey of consumer sentiment. It fell again last month to be around 5 per cent below its long term average.

For the best part of three years, consumer pessimism has outweighed optimism and this month should be no different.

The numbers tallied up in the second quarter national accounts supported the divergence evident in NAB and Westpac surveys.

Business sales and profits are picking up, and even investment intentions are becoming more positive. On the other hand, real disposable income has not risen since the GFC and household savings are shrinking.

So what makes business so chipper when the downtrodden consumer underwrites around 60 per cent of the economy?

Minack Advisors’ Gerard Minack said the disparity was easy to explain; business sales and profits were driven by aggregate activity, while consumer sentiment was tied to per person income and spending.

The bullish business feeling has not translated into a robust economy, but there are now seeds of optimism, according to Mr Minack.

“While it’s not news that Australian business is more upbeat than consumers, what is new is the hint that corporates are acting on that sentiment,” he said.

The important drivers in the economy — investment, hiring and wage payments — are picking up.

Mr Minack noted the most surprising development of the three was wages, with NAB survey finding wage costs were rising, although official data indicates they were not.

He argued the degree of slackness in the labour market suggested the official data was broadly accurate.

“While an improvement in investment remains a forecast, not so for employment,” Mr Minack said.

“Hiring intentions from the monthly business surveys are at all-time highs [starting 2002].

“More to the point, employment growth has accelerated through this year, and most new jobs have been full-time.”

Strong jobs growth

Further evidence of that is expected this week when the Australian Bureau of Statistics trots August jobs numbers on Thursday.

The consensus forecast is for another 20,000 new jobs and unemployment staying put at 5.6 per cent.

Mr Minack said his base case for the economy remained one of ongoing anaemic nominal growth.

“However, the improvement in corporate indicators suggests that the risks are becoming more balanced. The base case outlook would brighten if wage growth accelerates.”

That remains a substantial “if”.

There is not much else on the calendar, although AGM season gets underway as does the September quarter production results in the resources sector.

Overseas is very quiet — bar the substantial monthly data dump in China on Thursday.

Readings of industrial production, retail sales and the proxy for infrastructure spending — fixed asset investment — are all expected to be broadly stable.

Australia

Date Event Forecast

Monday

11/9/2017

Tuesday

12/9/2017

NAB business survey Aug: Conditions & confidence rose again in July, but out of sync with consumer surveys
Bluescope AGM Melbourne: One of the big companies facing a protest vote from proxy advisors

Wednesday

13/9/2017

Westpac consumer confidence Aug: Unlike business survey, pessimism has the upper hand here

Thursday

14/9/2017

Labour market Aug: Market is tipping 20K new jobs & unemployment holding at 5.6pc
RBA speech Dep governor Guy Debelle speaks at a legal firm’s workshop
Transurban AGM Melbourne: May give an update on investment plans
Whitehaven Coal Q1 update Whitehaven is the first of the big miners to trot out quarterly production results

Friday

15/9/2017

Overseas

Date Event Forecast

Monday

11/9/2017

Tuesday

12/9/2017

US: Small business optimism Aug: Quite positive

Wednesday

13/9/2017

EU: Industrial production Jul: Weak, verging on negative
US: Budget statement Aug: Deficit getting larger, out near $125bn

Thursday

14/9/2017

CH: Monthly data drop Aug: Industrial production, retail sales and fixed asset investment growing at same pace as July
UK: BoE rates meeting Another hold at 0.25pc
US: Inflation Aug: May edge up a tad, but still a very weak pulse

Friday

15/9/2017

EC: Trade balance Jul: Still a handy surplus
US: Retail sales Aug: Not flash, marginal growth
US: Industrial production Aug: Also very modest growth

Topics:

company-news,

economic-trends,

stockmarket,

currency,

australia

First posted

September 10, 2017 05:53:36

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