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Australian Core Inflation Accelerates Toward Central Bank Target

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Australia retail sales
  • Australian Core Inflation Accelerates Toward Central Bank Target

Australia’s annual core inflation accelerated last quarter to just shy of the bottom of the central bank’s target range, underscoring its decision to leave interest rates on hold. Slight misses in other inflation gauges pushed the currency a little lower.

Key Points

  • Quarterly trimmed mean gauge rose 0.5%, matching estimates; annual trimmed mean advanced 1.9% vs forecast 1.8% (RBA aims for 2%-3%)
  • Quarterly headline CPI rose 0.5% vs estimated 0.6%; annual gained 2.1% vs forecast 2.2% and returned to target for first time since 3Q 2014
  • Aussie dollar bought 75.15 U.S. cents at 12:38 p.m. from 75.40 cents prior to report

Big Picture

Reserve Bank of Australia Governor Philip Lowe has signaled a willingness to tolerate weaker inflation, warning a rapid return to target implies interest-rate cuts that could further inflame east coast house prices. He said in minutes of this month’s policy meeting that the property and labor markets “warranted careful monitoring” — a departure for an inflation-targeting central bank.

Australia’s jobs market has remained subdued since the start of last year — aside from a full-time hiring bonanza in March that many economists are skeptical about — as unemployment lifted to 5.9 percent and underemployment remains high. That suggests plenty of slack and little likelihood of large wage increases and much faster inflation.

Economist Takeaways

“The rise in underlying inflation in the first quarter, coupled with the RBA’s financial stability concerns, dramatically reduces the chances of any further interest rate cuts,” said Paul Dales, chief economist for Australia at Capital Economics Ltd. “Today’s data suggest that underlying inflation is now at a level that the RBA will be willing to tolerate. As such, we are no longer expecting the RBA to cut interest rates further. That said, price pressures and economic growth are not strong enough to warrant interest rate hikes. ”

“To a greater degree the deflationary threat that was prevalent a year ago — not just in Australia but across the globe — is less of a concern,” said Savanth Sebastian, an economist at the securities unit of Commonwealth Bank of Australia. “It is pretty clear that inflation is not a threat to the domestic economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the medium term.”

“While inflation is still low, there is no room for complacency,” Sebastian added. “‘Non-tradable goods prices rose by 0.9 percent in the March quarter. These prices are more influenced by conditions in Australia.”

Other Details

  • Quarterly weighted median gauge advanced 0.4% vs estimated 0.5%
  • Annual weighted median gauge gained 1.7% vs forecast 1.8%
  • Tradable goods prices, which are impacted by the currency and other international factors, fell 0.2% from the previous quarter and were up 1.3% from year earlier
  • Non-tradables, which are affected by domestic variables like utilities prices, rose 0.9% from the prior quarter and climbed 2.6% from a year earlier
  • The rebound in the oil price that helped drive up headline CPI was reflected in a 5.7% jump in automotive fuel in the first quarter; new dwellings purchases by owner-occupiers gained 1%
  • Holiday travel and accommodation costs fell 3.8%; fruit prices dropped 6.7%

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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oil-rig

Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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