Aussie sentiment survives bushfires

Emily Nicol

Asian equities were weaker across the board today after Apple warned that its sales would miss forecasts as the disruption from the coronavirus had impacted both production and sales. This was particularly evident in Japan, with the TOPIX down a further 1.3% today as key Apple suppliers TDK Corporation and Tokyo Electron Ltd. saw significant declines. But while Korea’s KOSPI was down 1½%, the losses in China’s main CSI300 were more limited at ½%.

Indeed, in response to Apple’s announcement, the return of US markets after yesterday’s national holidays have seen yields on USTs fall (10Y yields are currently down around 4bps to 1.55%). JGBs yields have similarly continued to decline today, with 10Y yields down 2bps to -0.06%. ACGBs made gains too (10Y yields down 3½bps to 1.03%) even as the RBA minutes noted that the Bank has become more concerned about financial stability risks associated with further policy easing. And European govvies have unsurprisingly followed the global trend this morning, as European car registration figures reported a notable decline at the start of the year (see more below).

Euro area:
This morning brought the release of euro area new car registrations figures for January. And given significant weakness previously reported in Germany (-7.3%Y/Y) and France (-13.4%Y/Y), these unsurprisingly showed a notable decline at the start of the year, with registrations down more than 7%Y/Y, to 834k units, the lowest January reading for four years, following growth of 21%Y/Y in December. Admittedly, this weakness in part reflected major taxation changes announced in certain member states. But the European Automobile Manufacturers Association also noted that demand had also been limited by weaker global economic conditions and uncertainty about the UK’s exit from the EU. And downside risks to global growth, not least associated with the impact on the Coronavirus on economic activity, will likely weigh on car production over coming months too.

Later today will bring Germany’s ZEW survey of financial professionals, the first major European survey to be published for the month of February. While the ZEW indicators often follow the trend in equity markets rather than providing an accurate guide to economic activity, today’s survey will no doubt be watched for any signs of a hit to confidence since the coronavirus outbreak gained greater media attention.

The first of the UK’s top-tier releases will come this morning in the form of December’s labour market data. While employment growth is likely to have slowed in the three months to December from the ten-month high of 208k in November, it is expected to remain in positive territory to leave the unemployment rate unchanged at 3.8%. But regular earnings growth looks set to have edged slightly lower in the three months to December, to 3.2%3M/Y, which would be the softest for fifteen months. This notwithstanding, with the flash estimate of productivity in Q4 (also due today) set to have remained weak, this would imply still solid unit labour cost growth in the final quarter of 2019.

In Australia, the NAB published a special one-off business survey overnight to assess the impact of the recent bushfire crisis. But while there was inevitably significant disruption caused to businesses in key bushfire affected regions, overall the results suggested that the wider impact on economic activity was smaller than the Queensland floods of 2010-11. Indeed, around 80% of firms surveyed reported little to no impact, with those assessing moderate to large impacts (20%) almost double that during the Queensland floods. And while labour and material availability remained the biggest restraint to recovery, a surprisingly large amount of respondents (75%) suggested that business had returned to normal. So, while the New South Wales and Victoria states had inevitably experienced a more significant deterioration in conditions, overall, the NAB assessed today’s survey to be consistent with a reduction in Q1 GDP growth associated with the bushfires of 0.15ppt. This is broadly in line with the RBA’s recent assessment that the bushfires will knock just 0.2ppt off GDP growth across Q419 and Q120.

In the US, today will bring the first of the week’s housing market indicators with the NAHB housing index for February, which will be accompanied by the Empire Manufacturing index for the same month.


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