Summary: Household sentiment falls back after two months of rises; confidence index back to level comparable to May; survey period did not cover Sydney cluster announcement; pessimists outnumber optimists; index sensitive to local news regarding COVID-19.
After a lengthy divergence between measures of consumer sentiment and business confidence in Australia which began in 2014, confidence readings of the two sectors converged again around July 2018. Both readings then deteriorated gradually in trend terms, with consumer confidence leading the way. Household sentiment fell off a cliff in April but then staged a recovery through May and June.
According to the latest Westpac-Melbourne Institute survey conducted in the second week of July, average household sentiment has faltered. The Consumer Sentiment Index declined from 93.7 to 87.9, taking it back to a level comparable with the index in May.
“The timing of the survey is relevant. It covered the week in which the lockdown was announced for Melbourne but the survey closed before the news of a significant cluster was reported for Sydney,” said Westpac chief economist Bill Evans.
Local Treasury bond yields fell at the long end. By the end of the day, the 3-year ACGB yield was unchanged at 0.31% while the 10-year yield had lost 4bps to 0.89% and the 20-year finished 3bps lower at 1.53%.
In the cash futures market, expectations of a change in the actual cash rate remained fairly stable. By the end of the day, contracts implied the cash rate would remain in a range of 0.13% to 0.14% through to the latter part of 2021.
Any reading below 100 indicates the number of consumers who are pessimistic is greater than the number of consumers who are optimistic. The latest figure is again below the low end of the normal range and it is noticeably below the long-term average reading of just over 101.
Westpac’s Evans noted sensitivity to local news regarding COVID-19. “Victoria’s sentiment index plunged 10.4% in July but sentiment across the rest of the nation showed much milder declines…While milder, the weakness in other states is also likely to be linked to the outbreak in Victoria, reflecting concerns about the virus spreading interstate and spill-over effects on the wider economy.”