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The U.K. economy is unlike most European economies. It has an unemployment rate which is only bettered by Germany and it has no problem with deflation. It was also one of the first countries to get inflation back to within its central bank’s stated target range of 2%-3%.

 The annual rate of U.K. consumer inflation fell again in March as price increases of women’s apparel, alcohol and tobacco slowed. Consumer price index (CPI) figures released by the Office of National Statistics (ONS) indicated seasonally-adjusted consumer prices rose by 0.1% over the month, which is less than markets expected and significantly lower than February’s comparable figure of +0.5%. On a 12-month basis, the consumer inflation rate fell back from 2.7% to 2.4% (seasonally adjusted).

Bond markets reacted by sending gilt yields and sterling lower. 5 year yields fell by 4bps to 1.14% and 10 year yields lost 2bps to 1.42%. In currency markets, sterling was around 0.6% lower against both the USD and the euro.

Westpac and the Melbourne Institute describe their Leading Index as a composite measure which attempts to estimate the likely pace of economic activity relative to trend in Australia. The index combines certain economic variables which are thought to lead changes in economic growth into a single variable. This variable is claimed to be a reliable cyclical indicator for the Australian economy and an indicator of swings in Australia’s overall economic activity.

 Since October, the Leading Index has returned values which implied above-trend growth in the near future. Despite a series of yoyo-like rises and falls in the first quarter of 2018, the index is still in positive (above-trend) territory. The six month annualised growth rate of the indicator dropped from a revised +1.43% to +0.69%. These figures represent growth rates above trend-GDP growth, which is generally thought to be around 2.75% per annum for Australia.

The RBA held the official cash rate steady at its board meeting in April, a decision which surprised very few people. Given the current state of prices in the cash futures market, there is no material expectation of any rate rises this year and well into 2019.

The release of minutes from the RBA’s latest board meeting may change that. ANZ’s Head of Australian Economics David Plank said normally there was not much to glean from the minutes. He then went on to say, “This is not the case for the April minutes, however.”

The ANZ economist pointed to a sentence in the minutes and its reference to the next move in the official cash rate. “In current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down.” Various RBA officials have stated a variation of this phrase in several speeches in recent months, so does its presence in the minutes mean anything?

Plank says the expectation of a higher rate in the future is nothing new. “The RBA Governor has been saying as much for some time.” However, he thought the move to the RBA Board’s official records was something else. “But the fact the Board now explicitly acknowledges this is an interesting development.”

Westpac chief economist Bill Evans disagreed. “We do not think that the decision to signal in the minutes that the next move in rates is likely to be up is at all significant. The Governor has made that point on numerous occasions in his own speeches.”

Retail sales account for a large part of consumer spending, which itself is typically the largest segment of GDP in an advanced economy. Changes in retail sales have a large effect on GDP growth rates and thus they are of great interest to economists, policy makers and financial markets.

U.S. retail sales have been weak for the past three months but the latest figures for March may mark a departure from this trend. According to the latest “advance” sales numbers released by the U.S. Census Bureau, retail sales grew by 0.6% over the month and by 4.5% when compared with the same period last year. The figures were greater than the +0.3% median expectation and higher than February’s comparable figures of -0.1% and 4.1%.

U.S. financial markets reacted in a mixed fashion and bond yields went higher while the USD was weaker against other major currencies. By the end of the day, 2 year yields were 4bps higher at 2.38%, 10 year yields edged up 1bp to 2.83% but 30 year yields remained unchanged at 3.03%.

The quit rate time series produced by the Job Openings and Labor Turnover Survey (JOLTS) is a leading indicator of U.S. hourly pay. As wages account for around 55% of a product’s or service’s price*, wage inflation and overall inflation rates tend to be closely related. Former Federal Reserve chief Janet Yellen was known to pay close attention to the quit rate but whether new Fed chief Jerome Powell regards the indicator with as much interest is as yet unknown.

 Figures released as part of the most recent JOLTS report show the quit rate remained unchanged at 2.2% of the non-farm workforce at the end of February. Lower quit rates in the “other” and retail sectors were offset by higher rates in accommodation/food services and professional sectors.

The Australian Bureau of Statistics (ABS) collects data on housing finance commitments made by significant lenders. Their figures include secured (mortgage) finance commitments for the construction or purchase of owner-occupied dwellings and investment properties. It has some overlap with the RBA’s monthly private sector credit statistics which also includes investor lending and owner-occupier lending.

 The ABS has released housing finance figures for February and the figures indicate the number of owner-occupier approvals were 0.2% lower over the month and 0.8% lower than the same time last year. Excluding refinancing, the number of approvals declined by 0.1% for the month and 0.3% compared to February 2017.

In dollar terms, the total value of loan approvals excluding refinancing fell by 0.2% for the month and 0.8% on a year-on–year basis. Owner-occupier loan approvals (ex-refi) increased by 1.4% in February, further building on January’s revised 0.5% increase. The increase takes the annual growth rate from January’ revised figure of 6.9% to 7.6%. The monthly growth of investor loans fell from January’s 1.4% to 0.5% in February, although the annual growth “rebounded” from -11.8% in January to -5.9% in February.

During most of the period between 2014 and 2017 there was a divergence between consumer sentiment and business confidence in Australia. Some economists explained the difference by a lack of wage growth; low wage growth is good for business in keeping costs down and margins up but households’ propensity to spend is hampered. Other explanations, such as households’ debt levels and the threat of higher mortgage rates have also been put forward.

 After the Westpac-Melbourne Institute, December consumer survey was released, there was some talk of a possible alignment of the business and household sectors. The January survey provided some support to this line of thinking but then subsequent reports have failed to narrow the gap.

 According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were slightly less optimistic than a month ago as the Index dropped back from March’s reading of 103 to 102.4 in April. Any reading above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic. The long-term average reading is just over 101.

U.S. consumer inflation went into reverse in March as lower fuel prices outweighed increases in implied rents and medical costs. Consumer price index (CPI) figures released by the Bureau of Labor Statistics indicated seasonally-adjusted consumer prices fell by 0.1%, below expectations and lower than February’s comparable figure of 0.2%. However, on a 12-month basis, the consumer inflation rate increased from 2.3% to 2.4% (seasonally adjusted).

“Core” inflation, a measure of inflation which strips out the volatile food and energy components, increased by 0.2% for the month and 2.1% for the year, which was in line with expectations. February’s comparable figures were 0.2% and 1.9%.

Over the last few months, the adjectives used by NAB economists to describe business conditions have strengthened from “solid” to “elevated” and then last month to “record high”. According to NAB’s latest monthly business survey of 400 firms conducted in the last week of March, its Business Conditions Index fell back from a revised reading of 20 to 14.

Typically, NAB’s confidence index leads the conditions index by approximately one month, although in recent months the two surveys have diverged and the condition index has led the confidence index higher in trend terms since late 2014. The latest figures have not changed this situation. The confidence index slipped from 9 in February to 7 in March, a figure which is just above the long term average reading of 6.
ANZ senior economist Jo Masters said further employment growth could be expected, despite lower readings. “The forward-looking indicators of the labour market softened, particularly firms’ profitability, but broadly remain consistent with ongoing jobs growth. Confidence also retreated, which is not surprising given increasing global trade tensions and associated financial market volatility.”

 Westpac senior economist Andrew Hanlon agreed. “The survey suggests that the employment conditions index is consistent with jobs growth of around 21k per month. Such a pace would place downward pressure on the unemployment rate decline – unless the participation rate moved higher, a trend which has been evident of late as individuals respond to the improved labour market conditions.”

The U.S. labour market continued to grow in March but not at the rate economists expected. However, the U.S. employment rate has still managed to stay at its lowest level since February 2001.

According to the U.S. Bureau of Labor Statistics, the U.S. economy created 103,000 jobs in the non-farm sector in March. The latest figures also include upward revisions to previous employment numbers.  February’s figure was revised up from +313,000 to +326,000 and the January number was revised up from +175,000 to +176,000.

The market’s expectation for employment growth during the month was for +185,000 additional positions. U.S. financial markets reacted by sending yields lower, although allowance should be made for the presence of a “risk-off” theme as U.S.-China trade tensions ramped up. By the end of the day, 2 year bond yields were 3bps lower at 2.27% while 10 year yields and 30 year were both 5bps lower at 2.78% and 3.02% respectively. The U.S. currency was weaker against major currencies except for the Aussie. According to cash futures prices, the implied probability of a rate rise by the U.S. FOMC at its June meeting moved down from 85% to 80%.

After revisions to previous months’ figures, the unemployment rate remained unchanged at 4.1% as the total number of unemployed people shrank by 121,000 to just under 6.6 million while the total number of people employed in both the farm and non-farm sectors decreased by 37,000.