NAB’s business survey indicated Australian business conditions were robust in the first half of 2018, with a cyclical-peak reached in April of that year. Readings from NAB’s conditions index then began to slip and, by the end of 2018, they had dropped to below-average levels. Forecasts of a slowdown in the domestic economy began to emerge in the first half of 2019 and NAB’s business confidence index began trending lower, with the conditions index following. In February 2020, readings began to be affected by increased reportage of the newly designated COVID-19.
According to NAB’s latest monthly business survey of 400 firms conducted in the last week of March, business conditions plummeted. The NAB’s conditions index has registered -21, down from February’s revised reading of 0.
Business confidence went into freefall. NAB’s confidence index fell from February’s revised reading of -2 to -66, “its largest decline on record.” Typically, NAB’s confidence index leads the conditions index by approximately one month, although some divergences appear from time to time.
“The impact on the business sector of coronavirus containment measures has been immediately obvious,” said NAB chief economist Alan Oster. Westpac senior economist Andrew Hanlan said the survey “provided further confirmation that the COVID-19 medical crisis is also an economic crisis.”
US Treasury bond yields had slipped a little in overnight trading and local Treasury yields had a fairly quiet day. By the end of it, the 3-year ACGB yield had slipped 1bp to 0.27%, the 10-year yield remained unchanged at 0.92% while the 20-year yield finished 3bps higher at 1.63%.
Prices of cash futures contracts barely moved. By the end of the day, May contracts implied a rate cut down to zero as a 48% chance, unchanged from the previous day. June contracts implied a 41% chance of such a move, also unchanged. Another rate reduction was not seen as being any more likely in later months of 2020; December contracts implied a 44% chance of a rate cut down to zero.
ANZ senior economist Catherine Birch noted the conditions index had breached the previous record monthly low of -17 recorded in February 2009. However, she also pointed out “this is not as weak as during the 1990s recession, when quarterly business conditions neared -40” on a quarterly basis.