GDP forecast downgraded on the back of weak mining sector


The Reserve Bank (RBA) published its quarterly Statement on Monetary Policy on Friday and it pulled no surprises in retaining its easing bias.

The key change in this Statement was the modest downgrades to GDP growth forecasts through to the middle of 2015, reflecting the expected decline in mining investment and the restraint from the currency.

The RBA characterised the path of the economic outlook as being subject to both downside and upside risks.

It means the possibility of a further cut to the cash rate is only just that - a possibility if the economy should need it.

The RBA continues to see record low interest rates working through the economy with more of the effect still to flow through. 

The central bank also reiterated its strong desire for a weaker Australian dollar in order to help the economy rebalance.

We remain comfortable with our view that the RBA will not need to cut rates further but will need to keep rates low well into 2014.

The expectation that the economy will not return to trend growth until into 2015 supports this notion of rates staying low for longer.

Share Markets:

The US stockmarket finished the session higher boosted by surprisingly strong US payrolls data.

Initially the stockmarket fell after the upbeat payrolls data drove speculation about tapering, although the market later shrugged off these expectations to end stronger.

The Dow rose 0.6%, the S&P gained 0.9% and the Nasdaq was up 1.3% for the session.


US government bonds slumped (yields moved sharply higher) after the upbeat payrolls data saw investors rethinking the timing of QE tapering, with some now expecting it could be as early as

The yield on US ten-year government bonds jumped 15 basis points to 2.75%.

Australian three-year government bonds (implied by futures) followed the US and rose from 3.08% to 3.19%, while the 10-year rose from 4.08% to a four-week high of 4.23%.

Foreign Exchange:

The US dollar was broadly stronger following the payrolls report, with the US dollar index hitting a one-month high.

The Aussie dollar fell sharply against the US dollar, losing more than half a cent on the payrolls data. The Euro weakened versus the US dollar, but was slightly stronger against the Aussie, despite Standard & Poor's downgrading France's credit rating from AA+ to AA.


The copper price rose on Friday night, with the stronger than expected payrolls report driving expectations of demand.


The trade surplus widened to $31.1bn in October, from $15.2bn in September. 

It is the biggest surplus this year and will help sustain an economic recovery.  Exports were the surprise factor, rising 5.6% in the year to October.

Industrial production was stronger than expected, rising 10.3% in the year to October, up from 10.2% in the year to September.

Retail sales were a little slower than expected, rising 13.3% in the year to October, unchanged from the previous result.

Consumer prices were reasonably contained, rising 3.2% in the year to October, up from 3.1% in the year to September, but below consensus forecasts for a 3.3% annual increase.

Food prices fell 0.4% in October, while non-food prices rose 0.3%, for a 0.1% inflation rate in October. For the year to October, food prices were up 6.5%, while non-food prices gained 1.6%.

Producer prices fell 1.5%in the year to October, down from -1.3% in the year to September.

Overall the data released in China on Friday and over the weekend, paints a picture of an economy which is growing, but where inflation remains relatively contained.


German exports rose 1.7% in September on top of a 1.0% rise in August, a solid end to the quarter after a moderate 0.8% fall at the start.

United Kingdom:

UK exports fell 0.8% in September, while imports rose a very modest 0.2%, lifting the global visible trade deficit from £9.6bn to £9.8bn.

United States:

US non-farm payrolls rose by an impressive 204k in October, and there was an upward revision of 60k to the August-September data, for a three month average gain of 202k in August-October, up from 145k in May-July, though weaker than the 224k in the previous 3 months and 205k at the turn of the year.

Interpretation is clouded, however by the unknown number of private sector jobs that were temporarily lost as collateral damage during the October government shutdown.

White House advisor Furman said last month there could be a 120k impact on October payrolls (ie private sector workers laid off because of the shutdown; government workers on furlough remained on the payroll so there was no direct impact).

Today, the BLS said there was "no discernible impact" from the shutdown but it is not clear if they meant they could not identify it, or they could but it was minor.

The separate household survey (used to calculate the unemployment rate) showed a jobs fall of 735k in October, including 448k on temporary layoffs, many of which were federal workers impacted by the shutdown.

This survey also showed a 735k fall in labour force participation but that should not be related to the shutdown.

Consequently unemployment only rose 17k although the jobless rate rounded up from 7.2% to 7.3%.

Hours worked rose 0.2%, hourly earnings by 0.1%, contributing to what should be a modest household income gain in the month.

On Friday, Fed Chairman Bernanke said there was still an "awful lot of slack" in the US labour market, but that the unemployment rate probably understates the degree of slack in the labour market.

The US core PCE deflator rose 0.1% in September from a revised lower 0.1% in August, for a 1.2% annual pace in the year to September 2013, down from 1.7% in the year to September 2012, when QE3 was commenced by the Fed.

They want inflation to go up, not down! The report also included a 0.5% rise in personal spending despite a modest 0.2% personal income gain.

US University of Michigan consumer sentiment slipped from 73.2 to 72.0 in the preliminary November reading, such that in four months it has dropped from a multi-year high to its lowest in almost two years.

The November detail showed most of the decline in current conditions; the outlook index was little changed.

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