Australian business conditions were robust in the first half of 2018 and a cyclical-peak was reached in April of that year. However, readings 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. Since then, conditions have remained quite stable, albeit at low-growth levels, while confidence readings appear to be trending lower.
According to NAB’s latest monthly business survey of 400 firms conducted in through late January and early February, business conditions continued to bump along at below-average levels. The NAB’s conditions index has registered 3, the same reading as at the start of January.
Business confidence recovered a little, although it remained very much at the lower bound. NAB’s confidence index ticked up from -2 to -1, well below its long-term average reading of 6. Typically, NAB’s confidence index leads the conditions index by approximately one month, although some divergences appear from time to time.
Alan Oster, NAB’s chief economist, said the figures “suggest very little-to-no growth in the private sector.”
Although US Treasury bond yields had closed a little lower in overnight trading, local yields finished slightly higher. By the end of the day, yields on 3-year and 10-year ACGBs had each ticked up 1bp to 0.71% and 1.03% respectively while the 20-year yield finished 2bps higher at 1.43%.
Prices of cash futures contracts moved to reflect a softening of rate-cut expectations on the day. The March contract implied a 7% chance of a 25bps rate cut, down from the previous day’s 11% while the April contract implied a 26% chance of another cut, down from 31%. May contracts implied a 48% chance but prices of the July contract almost fully factored in a 25bps cut.