Consumer sentiment has fallen 2.6% in February, mostly due to the home owners fears the Reserve Bank of Australia will continue to raise interest rates over the course of the year.
Westpac economist Bill Evans said in a statement the fall was surprising due to the RBA’s decision to hold off on another rate rise last week.
“However, the level of the Index remains very high. It is still 2.9% above the December 2009 reading; 3.2% above the reading of six months ago and 15.2% above its long-term average.”
“While recognising that rates were held steady in February households do not expect rates to have peaked. A special question in the February survey on consumers’ expectations for mortgage interest rates supports this view. An overwhelming 93% of consumers expect rates to rise over the next 12 months with over 60% expecting an increase of more than 1%.”
Evans also said additional factors which could bring down confidence were incidents in the global economy including news Chinese authorities have “moved to slow” GDP.
Additionally, the emergence of risk concerns in Europe and drops in the sharemarket have also brought confidence down.
“With such significant falls in the sharemarket and caution about interest rates it does not surprise that the components of the Index which experienced the largest falls related to respondents’ views on their own finances. “
“Responses to “Family finances compared to a year ago” fell by 5.4% while the 12 month outlook for finances deteriorated by 4.6%. Expectations for “Economic conditions over the next 12 months” fell by 0.8% and the five year outlook for economic conditions improved by 1.6%.”
Evans also said that while the market expects the RBA to hold off on rate rises in March, he noted next month’s meeting will be three months since the last increase and will give the board enough time to see any impact on the economy.
“A return to stability in global economic conditions over the next three weeks could still see the Bank opting for another increase in March,” he said.
Meanwhile, new job advertisements rose by a seasonally adjusted 7.1%, according to the latest figures from the Seek Employment Index.
The survey found the number of new ads has now risen about 31.8% since their low point in June, and suggested the labour market is now in a U-shaped recovery. The employment index grew by 7.3% in New South Wales, 4.9% in Western Australia and 3% in Victoria. South Australia grew by 2.2%, and Queensland by 2%.
Seek Employment managing director Joe Powell said in a statement the result was a good start to the year.
“The steady recovery of the labour market now seems to be showing a clear trend in the right direction. Looking at the trend in new job ads, it would appear that unemployment has peaked below the higher figures widely anticipated and a recovery could be forming.”
Shares higher after Wall Street rally
The Australian sharemarket has opened higher today due to improved performances on commodity markets, and on Wall Street.
The benchmark S&P/ASX200 index was up 43 points or 0.96% to 4548.2 at 12.00 AEST, while the Australian dollar also increased to US87c.
Commonwealth Bank shares fell by 0.3% to $52.54, while ANZ also fell by 1% to $20.37. NAB lost 0.7% to $24.94, as Westpac gained 0.9% to $23.08.
The Commonwealth Bank has recorded a 54% increase in profit for the first half of the year to $2.94 billion, and says it remains positive about its medium-term outlook despite market volatility.
Statutory net profit was $2.91 billion, with the bank to pay an interim dividend of $1.20 per share.
“While the group is optimistic about the medium-term outlook for the Australian economy and for the group, there are still some risks from international volatility which could affect short-term performance,” chief executive Ralph Norris said in a statement.
“As a result of these factors, and the uncertainty surrounding the outcome of initiatives by global regulators around banking sector capital and liquidity, the group plans to retain its current conservative capital and liquidity settings for the foreseeable future,” he said.
In the mining sector, BHP Billiton has said it remains cautious about the global economic recovery and said China’s monetary policies could affect commodity prices.
The company recorded a 7% decline in first half profit to $6.49 billion, with revenue also dropping 17.5% to $US24.58 billion.
“In the short-term, it is critical to monitor the pace of monetary tightening and the rate of loan growth for commodity intensive sectors in China,” the company said in a statement.
“We do not expect China to stop lending, however, reduced credit liquidity in key segments of the commodity market may have a flow-on impact on prices.”
Woodside Browse project enters design phase
Woodside Petroleum has said its Browse liquefied natural gas project has entered the design phase, which will determine the major working parameters of the site.
Building products group Boral has recorded a 9% decline in first half profit to $68 million, but it also said it expects full-year profit to be about $123.5 million, in line with forecasts.
“In Australia, housing activity is showing signs of recovery which is being offset to a degree by a significant downturn in commercial non-dwelling work,” chief executive Mark Selway said in a statement.
“Government spending in the education and health sectors will be helpful and ongoing government spending on major infrastructure projects will sustain a pipeline of future activity.”
Overseas, Wall Street stocks rose by its largest daily percentage gain in three months due to reports an aid plan is in the works for Greece, which is heavily in debt. The Dow Jones industrial average rose 150.25 points, or 1.52%, to 10,058.64.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
