GDP Rises in Q1
Aussie bulls were given further encouragement overnight as the latest economic data came in above expectations. Aussie Q1 GDP came in at 1.8%, well above the 1.6% forecast. With this latest increase, annual GDP is now at 1.1% and sitting 0.8% higher than the previous (pre-pandemic) peak.
More Evenly Split Recovery
Looking at the breakdown of the data provided by the ABS, there were further encouraging signs. The main positive contributions came from private investment ( +0.9%) and household consumption (+0.7%). This shows that recovery is becoming more evenly split, which will certainly be good news for the RBA given its concern over an uneven recovery so far.
Looking at the data further, within the private investment figure, the increase was predominantly driven by an uptick in business machinery and equipment purchases, which both increased by 11.6%. This was the largest rise in both sections since December 2009. Housing investment also saw an impressive 6.4% increase, helped hugely by government subsidies such as the HomeBuilder scheme and the temporary full expensing of business investment.
Services Sector Jumps
The better performance in the services sector has also been highly encouraging. Looking at the breakdown of rise in services pending, the main lift came from hotels, cafes and restaurants, which saw a 14.8% rise in spending, while transport services also jumped by 8.8%. The ABS noted that "There has been a lift in domestic tourism as borders largely remained opened during the first quarter.” However, the increase in spending on eating out has come at a slight cost to grocery expenditure. The ABS noted that spending on goods dropped 0.5% in Q1, fuelled by declines in food and alcohol goods at -1.4% and -3.9% respectively.
Lockdown Impact Risks
However, despite a better than expected reading, there are still some risks within the Aussie outlook. Chief among these is the lockdown which has been underway in Victoria, the effects of which (present in the June quarter) won’t be seen until released in September. Any further outbreaks and additional lockdowns could also negatively impact the data, highlighting how severe the COVID threat remains.
Technical Views
ASX200
The main Aussie stock index is breaking out to fresh, record highs today. Following the bounce off the 6916.6 level and rising channel low, the index has turned higher once again. While the MACD is bullish here, bearish divergence in the RSI index is worth noting. For now, the focus remains on further highs. Should we see any correction below 6916.6, 6657 is the next level to watch.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.