The Aussie has largely stabilised following last week’s late sell-off due tothe Fed chair’s remarks at the Jackson Hole Symposium.
Turning to the data, partial indicators data for Q2 GDP have been released this week presenting a broadly mixed picture. Business indicators data leaned toward the downside, with private inventories unexpectedly declining and dragging on growth, though sales volumes and company profits held up reasonably well. That said, government finance data was more encouraging, with public demand rising 0.2% QoQ in line with our view, as a 1.9% QoQ rise in public spending offset a modest 0.1% fall in public investment, together contributing around 0.1ppt to quarterly growth. Public inventories added a further 0.2 ppt togrowth. Net exports also surprised to the upside, contributing 0.10 ppt to quarterly growth, as a 0.2 ppt net services exports contribution outweighed a 0.1 ppt drag from net goods imports. On balance, the data suggests some upside to our GDP forecast of 0.4% QoQ/1.9% YoY.
Additionally private sector credit data for July was also released and showed growth easing to 0.6% MoM (from 0.8%). The slowdown was broad-based, with business, personal, and housing lending all easing.Investor housing credit was notably weaker, with monthly growth falling to 0.5% from 0.8%, likely reflecting the combined effect of housing tax policy changes and higher interest rates weighing on investor activity.
August house price data also showed national prices falling for the fifth consecutive month, down 0.9% MoM. While the declines have been concentrated in Sydney and Melbourne, softening is now spreading to more resilient markets like Perth and Brisbane. Still, despite the broader cooling in the housing market, household spending has held up much better than expected, which should ease any RBA concerns about falling house prices weighing on consumption via the wealth channel.
Turning to the Middle East, US and Iran traded strikes for the first time in about a month. The US hit Iranian rocket launchers on Larak Island in the Strait of Hormuz, alleging IRGC forces were preparing sea mines. Iran retaliated with missile and drone strikes on US bases in Jordan and a drone toward the UAE which were all intercepted. The attacks followed US Treasury Secretary Bessent's "economic onslaught" pledge against Iran and its trading partners, though China, Russia and others have largely shrugged this off so far. Given the flare-up in tensions, Brent crude rose sharply above $90/bbl.
Looking ahead, the key focus this week will be US non farm payrolls data for August. Markets expect payrolls to rise 58k following July's -23k fall,with the unemployment rate holding at 4.1%. While a stronger print could see the US dollar rally and build the case for the Fed to hike, we don't share this view. We see the US labour market as still showing signs of softness, which has been a key reason behind the lack of broader price pressures across the economy. Against this backdrop, our view is that the Fed may should look through any upside surprise, given pockets of underlying economic weakness elsewhere. Indeed, we continue to hold the view that the Fed doesn’t move rates this year.
