AUSTRALIA DATA: GDP Details Signal Gradual Recovery Still In Place
While Q1 GDP was weaker than expected and slower than Q4, it was impacted by extreme weather events in the quarter which impacted exports and domestic demand. Thus there is likely to be some positive payback in Q2 and so a reaction by the RBA to the weakness at its July 8 decision is not assured. Given special factors, it is likely to watch the more timely monthly data closely for signs of a Q2 recovery.
Australia GDP %
Source: MNI - Market News/ABS
- Real GDP rose 0.2% q/q in Q1 leaving annual growth stable at 1.3% but domestic demand slowed to 0.2% q/q & 1.9 y/y from 0.7% & 2.2%. Q4 GDP rose 0.6% q/q. The largest contribution was from household expenditure at 0.2pp, while exports detracted 0.2pp. Inventories added 0.1pp.
- The ABS noted that shipments of LNG and coal were particularly impacted by “severe weather disruptions to production and shipping”, which is likely to have rebounded over Q2. Weather impacted mining, tourism and shipping.
- Household spending rose 0.4% q/q to be up 0.7% y/y down from Q4’s 0.9% y/y. There was a pickup in the savings rate to 5.2% from 3.9% due to higher government income support and insurance claims in Queensland.
- Government consumption was flat with annual growth slowing to 3.4% y/y from 5.0% in Q4, but is also likely to rebound. There was less spending on electricity rebates and benefits but a pickup in defence. Investment by public corporations fell sharply but was still up 7.1% y/y.
- Private capex rose 0.7% q/q to be up 2.3% y/y driven by construction, while equipment contracted for a second straight quarter.
- Weak investment resulted in lower imports of capex goods which drove the 0.4% q/q decline in total imports which are now up only 0.4% y/y. The drop added 0.1pp to growth resulting in a net export detraction of 0.1pp.
Australia domestic demand y/y%
Source: MNI - Market News/ABS
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INDONESIA: VIEW: Goldman Sachs Expects 100bp Easing By End-2025
The impact on headline inflation of the government’s electricity discount continued to unwind in April with the CPI rising 1.95% y/y from 1.0% y/y in March and -0.1% in February. Core remained at 2.5% y/y for the third consecutive month but well within Bank Indonesia’s (BI) 1.5-3.5% target corridor. Goldman Sachs continues to forecast BI will ease by a further 100bp by end-2025 if the rupiah will allow it. It sees a risk that rate cuts could continue to be delayed if the “IDR continues to underperform peer currencies”.
- GS said “Indonesia's headline CPI inflation increased to 2.0% yoy in April, returning to the central bank's inflation target band of 1.5-3.5% (vs. 1.0% yoy in March). Today's reading was above our and Bloomberg consensus expectations. On a seasonally adjusted, sequential basis, headline CPI slowed to 1.1% mom s.a. in April from 1.6% mom s.a. in the previous month.”
- “Housing and utilities inflation rebounded to 1.6% yoy in April (vs. -4.7% yoy in March) mainly from a normalization of electricity tariffs. This contributed 26bp towards the headline inflation in April, compared to -77bp the previous month.”
- “Core inflation, which excludes food and administered goods, was unchanged at 2.5% yoy in April as faster personal care inflation driven by high gold prices being offset by generally slower domestic goods and services inflation.”
LNG: Gas Finishes Last Week Higher
Natural gas prices were higher last week supported by hopes that trade deals would be made with the US, especially China. US President Trump implied today that there could be some agreements announced this week. Europe rose 1.6% on Friday to EUR 32.65 off the intraday high of EUR 33.68 to be up 0.5% on the week. US prices were almost 19% stronger last week after rising 5.4% on Friday to $3.67.
- Following a cold winter, the market was worried about Europe’s ability to refill and meet the 1 November 90% target. Now summer month contract prices are below next winter’s, which is encouraging purchases for inventories. Higher temperatures and increased LNG imports, as vessels are redirected away from Asia, have also helped the process considerably.
- North Asian LNG imports fell 10% y/y in April as demand has softened with warmer weather and China’s tariffs on shipments from the US as well as increasing its own production.
- Reuters reported that new sanctions on Russian resources and banking had been agreed by US officials but it remains unknown if Trump will approve them, according to Bloomberg.
USD: Fails At First Hurdle
The BBDXY range on Friday night was 1219.15 - 1226.45, Asia is trading around 1221. The USD has failed miserably to hold onto its gains, as longs in USD/Asia are being forced to capitulate with another leg lower this morning.
- The USD has opened pretty weak in Asia once more as stocks give back some of their gains from Friday night and the move lower in USD/Asia accelerates.
- Deutsche Bank via BBG - “ Our medium term bearish dollar view has a lot to do with reallocation away from US asset overweights given policy changes.”
- On top of adding to his already large cash position instead of stocks Warren Buffet also said: “ There could be things that would happen in the US that would “make us want to own a lot of other currencies”.
- “ Economists at Goldman Sachs and Barclays pushed back their forecasts for the Fed to lower its benchmark to July, rather than June, after the data.”(per BBG)
- MNI Economist on FOMC Decision - “The FOMC will extend its series of rate holds to a third meeting in May, keeping the Fed funds target rate at 4.25-4.50% while maintaining its forward guidance in the Statement. At the press conference, Chair Powell is likely to warn about the risks to both sides of the dual mandate. Don’t anticipate any meaningful changes in the Statement, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant.
- Resistance in the BBDXY is at 1230, the market failed here at the first go, the ISM services PMI will dictate price action tonight. Price action suggests we test the recent lows at some point.
- Data : ISM Services PMI
Fig 1: USD/TWD Weekly Chart
Source: MNI - Market News/Bloomberg
