Consumer sentiment up by 0.2% despite rate rises: Economy roundup

Consumer sentiment has continued to rise, according to a private gauge, with the strong labour market and the Australian dollar negating the most recent rise to the official cash rate.

The Westpac-Melbourne Institute of Consumer Sentiment Index increased by 0.2% during March from 117 to 117.3. Chief economist Bill Evans said the result was good but that confidence may be reaching a point where it is more affected by interest rate rises.

“We assess that the bank now believes that rates are only around 50 basis points below neutral and the urgency associated with the three consecutive moves between October and December last year has passed,” he said.

“The resilience of confidence and the continuing improvement in the labour market will be key factors emphasising to the board that policy still needs to be normalised reasonably quickly.”

After another 50 basis points, Evans said the RBA will hold out for a longer period of time.

“A key to that decision will be in the expected greater sensitivity of households to rate hikes,” he said. “As we saw in the last cycle, once the variable mortgage rate reached 7.25% households’ responses to rate hikes became much sharper.”

“How consumer sentiment reacts in the months ahead will be a critical guide to whether policy tightening has passed this important threshold.”

The survey found consumers were slightly more positive about family finances, with that index rising 1.4% since last year, while responses to expectations for family finances over the next year increased by 5.5%.

However, viewpoints on economic conditions for the next 12 months dropped by 1.9%, with expectations for the next five years down by 2.7%.

Elsewhere, the seasonally adjusted number of owner-occupied housing commitments dropped by 7.9% to 51,056, according to the latest figures from the Australian Bureau of Statistics.

The figures show the number of constructions of new dwellings fell by 3.9%, with the number of purchases of new dwellings falling by 13.2%. Purchases of established dwellings dropped by 8.2%.

The total value of dwelling commitments fell by a seasonally adjusted 3.3% to $21.16 billion.

Meanwhile, the assistant governor of the Reserve Bank of Australia, Phillip Lowe, has said one of the main challenges facing the country over the next few years will be to increase the number of new homes and jobs without sparking inflation.

“The central scenario is a positive one with growth over the next couple of years at, or above, average, a relatively strong labour market, and inflation consistent with the medium-term target,” Lowe said in a speech at an urban development conference.

“Australia starts the current expansion with considerably less spare capacity than earlier thought likely,” he added. “The main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise.”

Lowe said one of the main ways to boost supply was through investment, which in Australia is currently at about 16% of GDP.

Shares flat after slight Wall Street lead

The Australian share market has opened flat today despite a slightly positive lead from Wall Street and overseas commodities markets.

The benchmark S&P/ASX200 index was down 12 points or 0.27% to 4807.2 at 12.00 AEST, while the Australian dollar opened slightly higher to US91c.

Westpac shares gained 1.1% to $27.27, while Commonwealth Bank shares rose by 1.1% to $55.84. ANZ rose 0.8% to $24.00, as NAB lost 0.1% to $26.84.

In Queensland, the state Government has said Credit Suisse, Goldman Sachs, JB Were, Merrill Lynch, RBS Morgans and UBS will run the float of the $7 billion QR National rail business.

“The five – given their complementary capacities – give us coverage at international, national and domestic levels and also from institutional and retail perspectives,” Treasurer Andrew Fraser said in a statement. The Government will retain a 25-40% stake in the short term.

Aurox agrees to Atlas Iron merger

Mining company Aurox has agreed to an all-scrip merger with Atlas Iron, with the board to apparently vote in favour of the deal.

Aurox managing director Charles Schaus said the proposed deal was a good opportunity for company growth.

“The high premium offered by Atlas is a great deal for Aurox shareholders,” Schaus said. “It reflects the high potential of the Balla Balla project, Aurox’s access to infrastructure and regionally significant water resource.

“The merged groups port capacity of up to 33mtpa (million tonnes per annum) will allow the company to generate substantial synergies from production and development schedule optimisation.

As reported by Reuters, toll road operator Transurban Group has apparently approached investors regarding a possible four-year Australian dollar bond issue.

Two fund managers have reportedly said the issue would be lead by the Commonwealth Bank of Australia and Westpac Institutional Bank. The company’s latest bond visit in Australia was in 2006.

Overseas, the US stock market closed higher one year after Wall Street hit its 12-year low. The Dow Jones Industrial Average gained 11 points or 0.11% to 10,564.38.