After a lengthy divergence between consumer sentiment and business confidence in Australia which began in 2014, the two sectors converged again around July 2018. Since then, confidence readings from both groups have deteriorated, with consumer confidence leading the way. Although recent surveys paint a picture of a cautious consumer, those same readings have not suggested any further material deterioration.
According to the latest Westpac-Melbourne Institute survey conducted in mid-January, average household optimism has fallen back to a level which is close to the lower part of its normal range. The Consumer Sentiment Index declined from 95.1 to 93.4, back to where it was in October 2019 and noticeably below the long-term average reading of just over 101. Any reading below 100 indicates the number of consumers who are pessimistic is greater than the number of consumers who are optimistic.
Westpac chief economist Bill Evans said, “It is entirely reasonable to have expected that the Index would have fallen during this period of devastating bushfires.” However, he said the fall was surprisingly small if one were to use the Queensland floods of 2011 as a guide.
Local Treasury bond yields finished the day lower, largely in line with US movements overnight. By the end of the day, the 3-year ACGB yield had lost 4bps to 0.70% while 10-year and 20-year yields had both shed 5bps to 1.13% and 1.54% respectively.