Australia &

New Zealand
weekly.

Week beginning 15 April 2019

„„ The AUD, the RBA, the FOMC and commodities.

„„ Australia: Westpac-MI Leading Index, employment, RBA minutes, Good Friday.

„„ NZ: CPI.

„„ China: GDP, retail sales, industrial production, fixed asset investment.

„„ Europe: trade balance, ZEW survey.

„„ US: retail sales, industrial production.

„„ Flash PMI's for Japan, the Euro Area, and the US.

„„ Key economic & financial forecasts.

Information contained in this report current as at 12 April 2019.

Westpac Institutional Bank


The AUD, the RBA, the FOMC and
commodities
The Australian dollar has held within a narrow range of
USD0.704 to USD0.716 over the month.
Key commodity prices, particularly iron ore, have been
stable over the month with spot at around US$90/t. General
expectations have been for this price to adjust downwards.
For example the government’s forecast for the iron ore price
(fob) by March 2020 is US$55/t (Westpac expects US$74/t
spot).
Supporting the iron ore price has been ongoing reports
from Vale of likely decommissioning of supply following
the collapse of the tailings dam in Brumadinho – general
expectation is that Vale will decommission around 40t of
production lowering overall annual production from 400Mt to
360Mt.
However markets are expecting even larger production cuts
to eventuate. Another major producer, Rio Tinto, has also
recently been impacted by a supply shock.
On the demand side, confidence is rising in response to
China’s commitment to stabilising growth through lifting
credit; easing restrictions on the shadow banking sector;
supporting bond issues by local governments to finance new
infrastructure investment; tax cuts; and some support to
housing in selective regions.
This stability at high levels for key commodity prices is
providing solid support to the Australian dollar – indeed the
fair value of the AUD as measured by commodity prices, is
currently holding well in excess of current spot.
On the other hand, interest rate differentials continue to
weigh on the AUD. When on February 21, Westpac moved to
forecast the RBA would cut the cash rate by 25bps in August
and November this year, markets were not anticipating a cut
until April next year.
That pricing has now moved forward to August/September
with 75% of a second cut priced by mid next year. (pricing
COB Wednesday).
However in a Q&A follow-up to a speech on Wednesday to
the American Chamber of Commerce in Australia, Deputy
Governor Debelle is reported to have noted “Our expectation
is that we will see decent growth in the economy…so we won’t
have to get to that point [of cutting rates].”
A test of that assertion will be when the RBA releases its
revised growth; inflation and employment forecasts in the May
Statement on Monetary Policy on 10 May. Currently, the RBA is
forecasting GDP growth of 3% in 2019 and 2.75% in 2020. The
lower growth rate in 2020 is largely explained by a reduced
contribution from resource exports – particularly LNG.
Those forecasts were released for the February Statement
on Monetary Policy when the RBA was forecasting growth of
2.75% for 2018. Subsequently, growth printed at 2.3% for 2018.
It would be very surprising if the RBA did not lower its growth
forecasts at the time of the May update. (Westpac expects
growth of 2.2% in both 2019 and 2020).With our view on the
economy we would expect RBA forecasts of 2.5% and 2.25%
(respectively).
Given Dr Debelle’s remarks, it is more likely that the RBA will
choose 2.75% and 2.5%. But even those forecasts point to
below potential growth in 2020. By May, the 2020 forecast
is the most important one from a policy perspective given
monetary policy acts with a lag.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Westpac weekly
The expected trigger for the rate cut would be a further
downward revision in the growth forecasts at the August
Statement on Monetary Policy to, possibly, 2.5% (2019) and
2.25% (2020).
Any central bank forecasting below potential growth should
adopt an easing bias.
The recent change in the Governor’s Statement following
the April Board meeting at least shifted the dial to a more
flexible approach to policy rather than the sentiment which
this Governor had maintained since his first Statement back in
October 2016.
Despite the firming of the probabilities of a rate cut, the
AUD has remained quite stable. That probably reflects
the commodity environment and the limits to the forward
expectations of currency markets.
The outlook for US interest rates is also important. In March
markets had been pricing in a 70% probability of a rate cut
from the FOMC by year’s end. That pricing has now moved
back to a more reasonable 45% although pricing is around
80% for two cuts by September 2020.
Westpac has revised its outlook for the federal funds rate.
We no longer expect a late cycle rate hike at the December
meeting of the FOMC. My visit to the US in February gave
me little confidence that the FOMC was likely to see the
need to raise rates again in this cycle. Tailwinds in 2018,
including those from global growth, fiscal policy, and financial
conditions, have turned into headwinds in 2019.
Confidence around the ‘stickiness’ of the core PCE inflation
measure was also clear. Indeed there was a general view that
the FOMC needed to be seen to be symmetric around the 2%
target for core PCE inflation. A period in which it ran above
2% would be welcomed in confirming that symmetric policy
stance.
My concern has always been with the likely persistent lift in
growth in hourly earnings (up from a 2.5% to a 3.2% annual
growth rate over the last year) as the labour market remains
buoyant. However there was a view that statistical research
had failed to find a link between wages growth and core PCE
inflation.
The concept of neutral rates had also been ‘adapted’. There
was no longer a sense of ‘long term/short term’. Neutral policy
depended on potential growth (around 2%) and core PCE
inflation around 2%. Westpac’s, and the FOMC’s forecast for
GDP growth in 2019 is around 2%, providing further comfort
that rates could stay at current levels since they are now at
neutral.
Equally we do not subscribe to the view that rates will be
cut by the FOMC over the 2019 and 2020 time horizon. With
lower mortgage rates; solid income growth; some expected
upward pressure on inflation; and fiscal policy likely to be
supportive, especially in the election year of 2020, a steady
rate profile seems most likely.
With markets expecting rate cuts in the US and under-pricing
rate cuts in Australia, some further downward pressure on the
AUD can be expected from the current USD0.715. But with an
improving commodity price outlook we have not moved our
target of USD0.68 for AUD over the course of 2019 despite
the flatter profile for the federal funds rate.
Bill Evans, Chief Economist
2

The week that was
The Federal election campaign officially kicked off in Australia
this week shortly after the Westpac-MI consumer sentiment
indicated the Budget was well received. Overseas, central
banks reiterated a cautious tone while the Brexit deadline was
extended (again).
Wednesday’s Westpac-MI Consumer Sentiment survey was eagerly
anticipated after last week’s release of the 2019/20 Federal Budget
which included a further $19.5bn in income tax relief.
While the month to month rise in Sentiment was fairly muted
at 100.7 compared to 98.8 in March, sentiment clearly caught
an uplift from the Budget. Indeed, among those surveyed post-
budget, sentiment was 7.7% higher than those surveyed pre-
budget – the most positive turnaround since we began tracking
pre and post budget responses in 2011.
Yet it is important to take a step back from the near-term lift
in overall sentiment. Persistent weak wages growth, falling
house prices, and the perceived rising cost of living are all
still weighing on consumers. This is reflected in the survey
component ‘family finances compared to a year ago’ – which
declined 4.9% in April (showing little movement between pre
and post Budget responses) and is down 9.6% on a year ago.
In that respect, disappointing consumption growth was a key
theme in RBA Deputy Governor Debelle’s speech on “The State
of the Economy”. Ultimately, “unexpectedly weak” consumption
had been the main surprise in recent growth outturns with
“other parts of GDP” evolving “broadly as expected”.
Here, Debelle related some part of the slowdown to declines
in housing prices but was sceptical of a direct ‘wealth’ effect.
Instead, he believes lower housing turnover is the main factor
as consumers spend less on household furnishings as well as
vehicles. With more supply coming on to the Melbourne and
Sydney housing markets this year, Debelle sees further weight
on prices. While some comfort can be found in the stable
read in Feb housing finance on Tuesday, today’s release of the
biannual Financial Stability Review is still likely to emphasise
that the RBA is cautious and watching housing.
However, of greater concern to Debelle in regards to the
consumption outlook is low household income growth and the
consumer’s “increasing expectation that it is likely to remain
low”. The RBA remain of the view that household income is likely
to pick-up over the next few years but this is conditioned on
strength in the labour market persisting. Indeed, the key take-
out from Debelle’s speech is that the RBA are still assessing
Chart of the week:xt
Our April Market Outlook was released this week and contains a
comprehensive update on the Westpac view.
While global and local growth prospects are unchanged since our
March report, we have made several key changes to our market
outlook this month.
On official rates, the FOMC is no longer expected to deliver one
last late cycle rate hike, and the RBNZ now looks poised to make a
25bp cut in May.
Australia’s commodity prices are expected to hold up better than
previously expected, leaving our forecast for the AUD unchanged
despite the revised federal funds rate profile.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Westpac weekly
“conflicting signals provided by the labour market, the GDP data
and the business surveys”.See page 2 for further detail.
Turning to offshore matters, the major thematic this week
relates to central banks remaining in a cautious watch-and-wait
mode, which coincides with the IMF downgrading their 2019
growth forecast to 3.3% from 3.5%.
In the US, the FOMC minutes largely reflected communication
from committee members over the past month. While “some”
members noted it could be appropriate to raise rates in 2019,
and “several” noted their view on rates could move up or down
and were not on a pre-set course, a “majority” see rates on hold
this year – as per the dot plot.
Further emphasising the capacity for the FOMC to maintain
their “patient” approach was the release of Mar CPI that same
morning. Headline inflation overshot expectations but the core
indicator underwhelmed with annual core CPI inflation declining
to 2.0% from 2.1%. A lack of inflationary pressure means the
FOMC can maintain a steady hand while the outcomes of various
global uncertainties unfold.
Across the Atlantic, the April ECB meeting confirmed the policy
stance after the dovish shift in March. New information has
been consistent with “slower growth momentum extending
into the current year” and while “idiosyncratic domestic factors
dampening growth are fading, global headwinds continue to
weigh”. Accordingly, the ECB continues to believe risks are
tilted to the downside.
Discussion on the pricing of new TLTRO was scarce (an
announcement to be made in forthcoming meetings), but the
ECB did note in April that they are analysing possible side
effects of negative interest rates on the back of the recent
discussion on the ECB potentially moving to a tiered deposit
rate. The analysis is still in its early stages, and we do not
expect a change to tiering any time soon, but if anything, the
opening of the debate underscores the ECB’s awareness of
rates likely being ‘low-for-longer’ in a general sense.
To the UK, the outcome of this week’s EU Summit is that the
Brexit deadline has been extended to 31 October, with the
option to leave sooner if the UK Parliament can agree on a
path forward. This is longer than the 30 June delay UK PM
May had hoped for, and will mean the UK will have to take part
in European Parliament elections on 23 May, if they have not
found an agreement by then.
AUD - rate differential and commodities
USD ppts USD Index
8
AUD/USD lhs
1.2 AU-US 2y swap rhs 1.2
6
6
1.0 1.0
4
0.8 0.8
2
5
0.6 0 0.6
AUD/USD lhs
0.4 -2 0.4
log WCFIBI cmdty rhs
4
Jan-00 Jan-06 Jan-12 Jan-18 Jan-00 Jan-06 Jan-12 Jan-18
Sources: Bloomberg, Westpac Economics
3
 Westpac weekly

New Zealand: week ahead & data wrap

Close call increasing domestic price pressures and persistent softness in

tradables prices (outside of the occasional surge in oil prices).
The outlook for monetary policy is delicately poised. Following
The latter has been a global phenomenon, and probably reflects
the Reserve Bank’s change of tone in its March OCR review,
a combination of the modest cyclical upturn since the Global
we shifted our call to a rate cut as early as the May Monetary
Financial Crisis, and new technology that has helped to liberate
Policy Statement, but we emphasised that this was subject
consumers compared to the past.
to upcoming data and developments. We expect next week’s
inflation print to be subdued, but we’re sensitive to any
surprises. Meanwhile, a trifecta of soft data releases this week In contrast, non-tradables inflation has been gradually picking
will add to the RBNZ’s concerns about whether the local up – we expect it to rise to 2.9% in March, compared to 2.3%
economy has the momentum needed to generate a sustained a year ago. We (and the RBNZ) had been anticipating such
lift in inflation. a move, as the economy has moved closer to full capacity.
But given the ongoing softness in tradables prices, that’s still
somewhat short of what would consistent with a sustained
The RBNZ Governor’s comments in a media interview this
return to 2% overall inflation.
week were in line with our initial read of the March OCR review.
Governor Orr noted that the March statement was meant to
reflect that the balance of risks has shifted to the downside. But A further pickup in non-tradables inflation will depend on the
he emphasised that the decision in May is by no means settled. strength of the economy. Growth slowed in the second half of
2018, and so far the March quarter of this year is shaping up as
equally subdued. We still expect a pickup in growth over the
On balance, we still think that the odds are in favour of a
rest of this year, supported by rising government spending, a
rate cut in May. The RBNZ has highlighted concerns about
strong pipeline of building work, and rising household incomes.
the slowing global economy in particular – a point that was
But there are clearly risks to the downside.
underscored this week when the IMF further downgraded its
world growth forecasts. We’re more optimistic on global growth
than the market appears to be, but we don’t think that gloomy On that note, there was a trio of activity indicators this week
sentiment will dissipate within the space of a few weeks. that were distinctly on the soft side. House sales fell further
in March, and were down 13% on a year ago. Turnover was
already dropping earlier this year, but back then the weakness
In terms of local developments, the March quarter CPI release
was concentrated in Auckland. In March, it seems that there
next week presents the most immediate risk to our view. We’re
was a sharp drop in turnover in almost every region. A decline
expecting a subdued 0.2% increase for the quarter, which would
in market turnover, along with a rising inventory of unsold
take annual inflation down from 1.9% to 1.6%.
properties in Auckland and Waikato, is a reliable signal of price
weakness ahead.
The expected slowdown is entirely due to fuel prices. Petrol
prices fell sharply at the end of 2018, and though they’ve
Concerns about changes to the tax treatment of property, and
started to tick up again recently, the average level over the
reduced foreign buyer activity, are likely to be weighing on the
quarter was down by more than 6%. Compared to a year ago,
housing market. In the near term, we expect the recent sharp
petrol prices are close to flat, which in turn will act as a drag on
falls in mortgage rates to give some support to house prices,
the overall inflation rate.
but tax changes are likely to win out in the long run.

We expect that ‘core’ inflation (excluding food and fuel) will

Electronic card spending in retail stores fell 0.3% in March,
hold steady at 1.7%. Similarly, we estimate that the RBNZ’s
which was weaker than we expected. Annual spending
sectoral factor model of core inflation will remain at 1.7%. That
growth has also taken a step down over the past year, slowing
would keep these measures firmly within the RBNZ’s target
to just 0.7%. This slowdown is consistent with the recent
range of 1-3%, albeit on the lower side of the midpoint.
easing in consumer confidence, as well as the cooling in the
housing market – spending on durables, which includes home
Our CPI forecast is in line with what the RBNZ forecast in its furnishings, was particularly soft in March.
February Monetary Policy Statement. If it turns out as expected
or lower, it’s likely that inflation will remain below 2% for the
Finally, the manufacturing PMI fell to an eight-month low of 51.9
remainder of this year as well. That in itself wouldn’t warrant
in March. The PMI is a useful leading indicator of GDP, and while
an OCR cut, but it wouldn’t stand in the way of one either.
it remains at a level consistent with expansion, it has clearly
However, if annual inflation prints at 1.8% or higher next week, a
taken a step lower in the last year.
May OCR cut would become more difficult to envisage.

In the outlook for inflation, there is a tension between gradually

Round–up of local data released over the last week

Date Release Previous Actual Mkt f/c
Thu 11 Mar food price index 0.4% 0.5% –
Fri 12 Mar manufacturing PMI 53.4 51.9 –
Mar card spending 0.6% –0.3% 0.5%
Feb net migration 6100 6570 –
Mar REINZ house sales –4.7% –6.8% –
Mar REINZ house prices %yr 3.0% 2.3% –

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
4
 Westpac weekly

Data previews
Aus Mar Westpac–MI Leading Index Westpac-MI Leading Index
Apr 17, Last: –0.56% % ann % ann
4 4
• The six month annualised growth rate in the Westpac– 3 six month annualised growth rate long term trend 3
Melbourne Institute Leading Index, which indicates the 2 2
likely pace of economic activity relative to trend three to
1 1
nine months into the future, fell from –0.37% in January to
–0.56% in February. Despite choppy reads in recent months, 0 0
the signal is consistent with weak momentum in the second -1 -1
half of 2018 carrying into 2019. -2 -2
post-GST
-3 -3
• The March read is likely to be more positive with several
-4 recession
slowdown
GFC -4
components recording strong rises this month including: the
Westpac-MI Consumer Expectations Index, up 5.4% vs -6.1% -5 -5
Sources: Westpac-Melbourne Institute
last month and dwelling approvals, up 19.1% vs 2.3% last -6 -6
month. Other components have been more mixed but have Feb-91 Feb-95 Feb-99 Feb-03 Feb-07 Feb-11 Feb-15 Feb-19
mostly seen modest improvements.

Aus Mar Labour Force Survey - employment '000
Apr 18, Last: 4.6k, WBC f/c: 8k
Mkt f/c: 15k, Range: 8k to 33k
• Employment lifted 4.6k in Feb, less than market
expectations (median +15k) for a three month average
gain of 21.1k per month. Through 2018 employment grew
274.5k (2.2%yr) with solid momentum into year end with
a six month annualised pace of 2.3%yr. In the year to
Feb employment grew 284k (2.3%yr) but the six month
annualised pace moderated from 2.9%yr in Jan to 2.3%yr.
Lead indicators have peaked but remain sound
%yr %yr
5 5
Model estimate of employ growth
4 employment 4
3 3
2 2
1 1

• Leading indicators have softened, annual growth in Job Ads 0 0

Sources: ABS, Westpac Economics
is now down through the year but this reflects the structural
shift to other recruitment methods rather than falling -1 -1
employment opportunities. ABS Job Vacancies growth has Feb-99 Feb-03 Feb-07 Feb-11 Feb-15 Feb-19
slowed from 24%yr in 2018 to 10%yr in 2019 and our own
Westpac Jobs Index suggest firms may be less confident on
lifting employment but it remains consistent with growth
around 2.3%yr. Our forecast 8k gain in employment holds
the annual pace at 2.3%yr.

Aus Mar Labour Force Survey - unemployment % Unemployment and participation rates
Apr 18, Last: 4.9%, WBC f/c: 5.1%
% %
Mkt f/c: 5.0%, Range: 4.8% to 5.1% 67 8
participation rate (lhs) PR trend
PR average since Jan
• Despite the soft print on employment in Feb, the 66 unemployment rate (lhs) since March
2008
2014

unemployment rate fell to 4.9% (market median was 5.0%) 7

as a 0.1ppt decline in the participation rate to 65.6% resulted
in a –7.1k decline in the labour force. 65
6
• At this stage it appears that both male and female 64
participation is levelling out in a trend sense and we are
closely watching where they go next. We do expect both to 5
63
edge lower though 2019 as employment growth stalls but
not by enough to prevent a rise in unemployment. Sources: ABS, Westpac Economics.
62 4
• Holding the participation rate flat at 65.6% generates a 31k Feb-03 Feb-07 Feb-11 Feb-15 Feb-19
rise in the labour force, and given our forecast for a soft 8k
rise in employment, this should see the unemployment rate
lift to 5.1%.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
5
 Westpac weekly

Data previews
NZ Q1 CPI NZ CPI inflation
Apr 17, Last: 0.1%, Westpac f/c: 0.2%, Mkt f/c: 0.3% % chg % chg
6 6
• We expect a 0.2% rise in the Consumer Price Index in the
5 Quarterly 5
March quarter. That would see annual inflation slow from
1.9% to 1.6%. Such a result would be in line with the RBNZ’s Annual
4 4
forecasts from February.
3 3
• The sharp drop in fuel prices at the end of last year is
entirely responsible for the slowdown in inflation. We expect 2 2
the various ‘core’ inflation measures to hold steady at close
1 1
to, but just below, the 2% midpoint of the Reserve Bank’s
target range. 0 0
Sources: Stats NZ, Westpac
• The CPI release will be crucial ahead of the Reserve Bank’s -1 -1
next Monetary Policy Statement. A result in line with or 2000 2003 2006 2009 2012 2015 2018
below expectations would support our forecast of an OCR
cut in May. However, a substantial upside surprise would
make a May OCR cut a more marginal prospect.

China Q1 GDP China real GDP slowly decelerating

Apr 17, last 6.4%, WBC 6.4% %yr %yr
16 16
• China GDP decelerated slowly through 2018, from 6.8%yr
at March to 6.4%yr at December. This trend decline was 14 14
the consequence of softening global momentum and
authorities' hard line on the quality of investment, in both 12 12
the public and private sector.
10 10
• With the economy's focus on quality now set, authorities
have materially increased liquidity, with flow-on benefits for 8 8
the cost of credit. A quick acceleration in growth is however
not anticipated in 2019. 6 6

• The reason being that, while investment will accelerate 4

Sources: Westpac Economics, CEIC.
4
through the year, the contribution from consumption is Dec-95 Dec-99 Dec-03 Dec-07 Dec-11 Dec-15
expected to throttle back. In 2018, employment growth
slowed (based on the PMI detail), and this will weigh on
consumption hence.
• For 2019 overall, we look for a 6.1% year-average gain.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
6
 Westpac weekly

Key data & event risk for the week ahead

Market Westpac
Last median forecast Risk/Comment
Mon 15
NZ Mar BusinessNZ PSI 53.8 – – Recent surveys have highlighted softening activity.
UK Apr Rightmove house prices 0.4% – – There's been no let–up in the uncertainty weighing on prices.
US Apr Fed Empire state index 3.7 8.0 – Regional surveys broadly positive but volatile.
Feb total net TIC flows –143.7 – – US Treasuries in strong demand.
Fedspeak – – – Evans on the economy and policy in NY.

Tue 16
Aus RBA minutes – – – A more distinct sign of shifting to an easing bias?
Eur Apr ZEW survey of expectations –2.5 – – Has stabilised in recent months.
UK Feb ILO unemployment rate 3.9% 4.0% – Growth stabilised in early 2019, unemployment to remain low.
US Mar industrial production 0.0% 0.3% – More sedate than the PMI's.
Apr NAHB housing market index 62 64 – Has recovered some ground as rates have fallen.
Fedspeak – – – Rosengren in NC, Kaplan in NM.

Wed 17
Aus Mar Westpac–MI Leading Index –0.56% – – Fell in Feb but key components lifted in March
NZ Q1 CPI 0.1% 0.3% 0.2% Dragged down by fuel prices, core stable a little below 2%.
GlobalDairyTrade auction 0.8% – – Pace of improvement in dairy prices has been slowing.
Chn Mar fixed asset investment ytd %yr 6.1% 6.3% – Will slowly build momentum through the year.
Mar industrial production ytd %yr 5.3% 5.6% – Modest growth continuing.
Mar retail sales ytd %yr 8.2% 8.3% – Consumer under pressure owing to weaker job growth.
Q1 GDP %yr 6.4% 6.3% 6.4% GDP growth to decelerate further in 2019.
Eur Feb trade balance €bn 17.0 – – Surplus declined over 2018
Mar core CPI %yr final 0.8% 0.8% – Flash undershot expectations.
UK Mar CPI 0.5% 0.2% – Core just below 2%, not showing signs of picking up.
US Feb trade balance US$bn –51.1 –53.6 – Tariffs have caused considerable volatility.
Feb wholesale inventories 1.2% 0.4% – Trade volatility seen in inventories too.
Federal Reserve's Beige book – – – Conditions across the districts.
Fedspeak – – – Bullard at Minsky conf., Harker in NJ, and NY Fed's Logan.
Can Mar CPI %yr 0.7% – – Headline pulled down by fuel, core lingering just below 2%.

Thu 18
Aus Mar employment 4.6k 15.0k 8.0k Our 8k forecast holds the 2.3%yr annual pace, on par with...
Mar unemployment rate 4.9% 5.0% 5.1% ...the leading indicators but result in a lift in unemployment.
Q1 NAB business survey 7 – – In March month, conditions at +7, confidence slumped to 0.
Kor Bank of Korea policy decision 1.75% 1.75% – Inflation below target but BOK resisting cuts.
Eur Apr Markit manufacturing PMI flash 47.5 – – Quite weak in Mar...
Apr Markit services PMI flash 53.3 – – ... but services lifted...
Ger Apr Markit manufacturing PMI flash 44.1 – – ... divergence particularly stark in Germany...
Apr Markit services PMI flash 55.4 – – ... will stronger Mar read in China have an impact?
US Mar retail sales –0.2% 0.8% – US consumer growth to moderate, but remain solid in '19.
Initial jobless claims 196k – – Very low.
Apr Phily Fed index 13.7 11.0 – Regional surveys broadly positive but volatile.
Apr Markit manufacturing PMI flash 52.4 53.0 – Continuing to point to robust growth...
Apr Markit services PMI flash 55.3 55.0 – ... across the US' economy.
Mar leading index 0.2% 0.4% – Pointing to growth near trend.
Feb business inventories 0.8% 0.3% – Trade volatility seen in inventories too.
Fedspeak – – – Bostic at roundtable in Florida.

Fri 19
Aus Good Friday public holiday – – – Markets closed in Aus, NZ, US and more.
Jpn Mar CPI %yr 0.2% 0.5% – Core ex energy & fresh food to hold at 0.4%.
Mar housing starts –8.7% 5.9% – Lower rates to allow a base to form for housing...
Mar building permits –2.0% 0.7% – ... construction in 2019.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been
taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or
by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
7
 Westpac weekly

Economic & financial forecasts

Interest rate forecasts

Latest (12 Apr) Jun–19 Sep–19 Dec–19 Mar–20 Jun–20 Sep–20 Dec–20
Cash 1.50 1.50 1.25 1.00 1.00 1.00 1.00 1.00
90 Day BBSW 1.70 1.80 1.55 1.40 1.40 1.40 1.40 1.40
3 Year Swap 1.53 1.50 1.50 1.45 1.45 1.45 1.45 1.50
10 Year Bond 1.88 1.85 1.75 1.80 1.80 1.80 1.85 1.90
10 Year Spread to US (bps) –61 –75 –90 –90 –85 –80 –70 –65
International
Fed Funds 2.375 2.375 2.375 2.375 2.375 2.375 2.375 2.375
US 10 Year Bond 2.50 2.60 2.65 2.70 2.65 2.60 2.55 2.55
US Fed balance sheet USDtrn 3.94 3.80 3.75 3.75 3.75 3.75 3.77 3.79
ECB Deposit Rate –0.40 –0.40 –0.40 –0.40 –0.40 –0.30 –0.20 –0.10
New Zealand
Cash 1.75 1.50 1.50 1.50 1.50 1.25 1.25 1.25
90 day bill 1.83 1.60 1.60 1.60 1.50 1.40 1.40 1.40
2 year swap 1.69 1.50 1.50 1.60 1.60 1.50 1.50 1.55
10 Year Bond 2.02 1.80 1.85 1.90 1.85 1.85 1.90 1.90
10 Year spread to US –48 –80 –80 –80 –80 –75 –65 –65

Exchange rate forecasts

Latest (12 Apr) Jun–19 Sep–19 Dec–19 Mar–20 Jun–20 Sep–20 Dec–20
AUD/USD 0.7131 0.70 0.68 0.68 0.69 0.69 0.70 0.70
NZD/USD 0.6736 0.65 0.65 0.66 0.66 0.65 0.65 0.65
USD/JPY 111.75 112 113 113 112 111 110 110
EUR/USD 1.1290 1.11 1.10 1.10 1.11 1.12 1.14 1.15
GBP/USD 1.3075 1.31 1.32 1.33 1.33 1.33 1.34 1.34
AUD/NZD 1.0588 1.06 1.05 1.03 1.05 1.06 1.08 1.08

Australian economic growth forecasts

2018 2019 Calendar years
Q2 Q3 Q4 Q1f Q2f Q3f Q4f 2017 2018 2019f 2020f
GDP % qtr 0.8 0.3 0.2 0.5 0.4 0.6 0.7 – – – –
% yr end 3.1 2.7 2.3 1.8 1.4 1.7 2.2 2.4 2.3 2.2 2.2
Unemployment rate qtr avg, yr end 5.4 5.2 5.0 5.1 5.4 5.5 5.5 5.5 5.0 5.5 5.7
CPI % qtr 0.4 0.4 0.5 0.1 0.4 0.6 0.5 – – – –
% yr end 2.1 1.9 1.8 1.4 1.5 1.7 1.7 1.9 1.8 1.7 1.7
CPI underlying % qtr 0.5 0.4 0.4 0.4 0.6 0.3 0.4 – – – –
% yr end 1.8 1.8 1.8 1.6 1.8 1.7 1.7 1.9 1.8 1.7 1.9

New Zealand economic growth forecasts

2018 2019 Calendar years
Q2 Q3 Q4 Q1f Q2f Q3f Q4f 2017 2018f 2019f 2020f
GDP % qtr 0.9 0.3 0.6 0.5 0.8 0.8 0.8 – – – –
Annual avg change 3.2 3.1 2.8 2.6 2.3 2.3 2.5 3.1 2.8 2.5 2.8
Unemployment rate % 4.4 4.0 4.3 4.4 4.4 4.2 4.2 4.5 4.3 4.2 4.0
CPI % qtr 0.4 0.9 0.1 0.2 0.5 0.7 0.3 – – – –
Annual change 1.5 1.9 1.9 1.6 1.7 1.5 1.7 1.6 1.9 1.7 2.1

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort
has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect
assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
8
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© Copyright 2019 Westpac Banking Corporation

Things you should know.

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