The ASX 200 is up 36 points at midday. Most sectors higher. Big news day. GDP flops, RBA soft on housing softness, MYR bounces despite further fall in sales (go figure). #ausbiz


  • Ex-dividend – Ariadne (ARA) 0.7c, Group (AUB) 13.5c, Accent Group (AX1) 4.5c, Brambles (BXB) 14.5c, Ellerston Asian Investment (EAI) 1.0c, Excelsior Capital (ECL) 3.0c, Ellerston Global Investments (EGI) 1.5c, Event Hospitality and Entertainment (EVT) 21.0c, FlexiGroup (FXL) 3.9c, Hansen Technologies (HSN) 3.0c, Kip McGrath (KMW) 1.5c, Maca (MLD) 2.0c, MNF Group (MNF) 2.1c, OceanaGold (OGC) 1.1c, PM Capital Global Opportunities Fund (PGF) 1.8c, Perpetual (PPT) 125.0c, Qube Holdings (QUB) 3.8c, Ramsay Health Care (RHC) 60.0c, Servcorp (SRV) 13.0c, Service Stream (SSM) 3.5c
  • Economic data – GDP Growth Rate. Estimates have been cut over the last 2 days due to weaker component data including net exports, company profits and inventories.


  • RBA Governor Philip Lowe speaking – The Housing Market and the Economy – at the Australian Financial Review’s 2019 Business Summit, Sydney
  • Myer (MYR) earnings


  • US economic data – ADP Employment Change, Trade Balance, Factory Orders, Fed’s Beige Book


  • Myer (MYR) – Total sales down 2.8% to $1,671.4m; comparable store sales down 2.3%; Online and omnichannel sales** up 18.6% to $151.2m; Improved operating gross profit margin and continued disciplined cost management more than offset higher depreciation and interest expense, resulting in NPAT* up 3.1% to of $41.3m; Statutory NPAT of $38.4 million, compared to $476.2 million loss in 1H2018; Operating cash flow increased by $8m to $173m with total net debt down $57m. Profit margin ticked up by almost a full percentage point on private label product focus (these +3.7%).Outlook – Sales are expected to be affected by the exit of a number of brands and the introduction of several new brands, and there will be additional costs associated with these initiatives.


Citi’s take on RBA Governor Philip Lowe today

The housing market correction remains orderly. As we expected, RBA Governor Lowe used his speech to the AFR Business Summit to map out the drivers of current housing market dynamics and offer thoughts on the implication for the economy and monetary policy. The speech provided little new information given the large amount of RBA communication in recent weeks, but was a reminder of the fundamentals that have and still are influencing the housing market.

Dr Lowe’s key points were:

  • There is no such thing as the Australian housing market. Instead, there exists a series of separate, but interconnected markets. The most volatile markets have been Sydney and Melbourne with Adelaide, Brisbane, Canberra and many parts of regional Australia exhibiting more stability.
  • Unlike earlier episodes of price falls, the origins of the current cycle do not come from interest rates and unemployment. Inflexibility on the supply side of the housing market in response to large changes in population growth is a more important explanatory.
  • Price dynamics were amplified this decade by the surge in foreign investment and subsequent waning as Chinese authorities managed capital outflows.
  • Macroprudential tightening resulted in some tightening in credit supply in recent years. However, the main story influencing the housing market slowdown is reduced demand for credit as valuations became stretched. The fact that there is strong competition for borrowers with low credit risk and a discount on interest rates on new loans shows that credit is still available.
  • Wealth effects from falling house prices are influencing consumption decisions for things like vehicles and furnishings via expectations of future income growth. This makes the labour market outlook very important to the overall economic outlook. The RBA still expects labour market tightening to drive higher wages growth and faster income growth that will offset the effect on spending of lower house prices.
  • Monetary policy has flexibility to adjust in either direction as required. Right now, the probabilities are evenly balanced.

Our (Citi) view. In our opinion, the downside risk to this view is not that house price declines overwhelm the consumer, but rather that wages don’t pick up as much as expected. This outcome would keep the consumer and inflation more subdued than forecast, potentially opening the door to interest rate cuts. However, the prospect of fiscal stimulus to the consumer and more public sector investment given NSW and Federal elections in the next two months makes a near-term rate cut unlikely without a big miss on today’s release of the Q4 GDP data.


Officially enters a “per capita” GDP recession, the first since 2006. Relaint on population growth

Aussie dollar fell on the release to a low of 70.52. Stabilised at 70.57.



Lots of short covering in JN Hi-Fi (JBH), Monadelphous (MND), A2 Milk (A2M), while building un Hub23 (HUB), Bank of Queensland (BOQ) and Inghams (ING)





US EQUITIES – S&P 500 -3 (-0.11%), Dow -13 (-0.05%), NASDAQ -1 (-0.02%)

Main themes

  • Trade – Secretary of State Mike Pompeo said Monday he thought the two countries were “on the cusp” of reaching a deal that would end the trade skirmish. China’s Commerce Minister Zhong Shan said that trade talks have achieved a breakthrough in some areas
  • Earnings – Target and Kohl 4Q earnings beat expectations,

EUROPEAN MARKETS – Mostly stronger. STOXX500 +0.15%, UK FTSE +0.69%, German DAX +0.24%, French CAC +0.21%.


  • The USD is up 0.15% at 96.83.
  • The Aussie dollar is lower at US70.87.

BONDS – 2-yr: +2 bps to 2.56%, 3-yr: +1 bp to 2.54%, 5-yr: +2 bps to 2.55%, 10-yr: +2 bps to 2.74%, 30-yr: +1 bp to 3.10%


  • Oil – WTI futures were down US3c at US$56.56. OPEC supply cuts continue to provide support while the restart of Libya’s biggest oilfield (EL Sharara, closed since December) weighed.
  • Iron Ore – IRESS reports iron ore up US$2 to US$88.00 a tonne. CommSec reports iron ore was up US$1.20 to U$88.00
  • LME metals – All much stronger. Copper +1.11%, nickel +2.86%, aluminium +0.11%


  • European data – Services PMI readings for February revised higher with the overall eurozone reading increasing to 52.8 from 52.3.
  • Chinese People’s congress – 2019 GDP growth target of 6.0-6.5% after targeting growth of about 6.5% in 2018. Tax cuts worth CNY2 trillion were announced due to a “tough economic battle ahead.” Premier Li also said that a prudent approach to monetary policy will be maintained while fiscal policy will be proactive.
  • US economic data – ISM Non-Manufacturing Index 59.7 (consensus 57.2; prior 56.7) and December New Home Sales 621K (consensus 572,000; prior 599,000)
  • Fed Speak – Boston Fed President Eric Rosengren said it may take “several” meetings for the Fed to have a clear read on whether economic risks are becoming a reality.
  • Moody’s lowered South Korea’s 2019 GDP growth forecast to 2.1% from 2.3% and its 2020 GDP growth forecast to 2.2% from 2.5%.
  • Italian politics – Movimento 5 Stelle politician Stefano Buffagni said his party is ready to quit the ruling coalition due to a disagreement over construction of a high-speed rail link between Turin and Lyon. A break-up would likely give Matteo Salvini’s Lega a larger representation in government.


“We really can’t forecast all that well, and yet we pretend that we can, but we really can’t.” – Alan Greenspan, American economist born this day in 1926


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