Australian Business Conditions Surge to Highest on Record

Australian Stock Markets

Australian business conditions surged to the highest on record, reinforcing signs of a strengthening labor market and pickup in investment.

 
The sentiment index jumped seven points to 21 in October and was driven by spikes in sales and profitability gauges, according to a National Australia Bank Ltd. survey of more than 400 firms conducted in the last week of the month. The business confidence index was unchanged at a revised 8

Results from the survey indicate that the business sector in Australia is very strong at present, which is having positive spill-overs into the labor market and, to some extent, investment,” the bank said in a statement. “However, fairly restrained levels of business confidence could be telling us something about how firms see the outlook.”

The Australian dollar rose on the report, buying 76.30 U.S. cents at 11:54 a.m. in Sydney from 76.18 before its release.

Australia’s central bank is forecasting that a strengthening labor market will eventually drive wage gains and faster inflation, while Deputy Governor Guy Debelle said that there had been a solid upward trajectory in business investment. Household spending remains a key uncertainty  particularly after retail sales posted the weakest three-month stretch in seven years.

While the survey’s employment conditions were unchanged, the bank said the measure still remained at levels that implied solid growth in employment, which should be sufficient to put more downward pressure on the jobless rate.

But the report came with a caveat: leading indicators suggest the possibility of some pull-back in coming months. The bank said that forward orders had eased slightly and the result was driven by a surprise jump in manufacturing.

Euro zone businesses end second quarter with slower growth

Roaring euro zone business growth tailed off unexpectedly toward the end of the first half of 2017 following a sudden slowing in the pace of expansion by services firms, a survey showed on Friday.

But with inflation relatively resilient and overall growth still quite strong, pressure will likely be maintained on policymakers at the European Central Bank to pare back soon on their ultra-loose monetary policy.

Earlier this month, the ECB gave up its bias for more rate cuts in a small step towards normalization.
IHS Markit's Flash Composite Purchasing Managers' Index for June fell to 55.7 from the 56.8 it registered in April and May, which was its highest since April 2011. A reading above 50 indicates growth.

A Reuters poll had predicted no change to the index, seen as a good guide to growth, and none of the economists polled had predicted such a big fall.

Williamson said the PMI pointed to second quarter GDP growth of 0.7 percent, faster than the 0.5 percent predicted in a Reuters poll earlier this month. The PMIs had correctly indicated a 0.6 percent expansion last quarter.

Economic data points to solid growth in the euro zone in the second quarter and inflation will hover near current levels in coming months, the ECB said in a regular economic bulletin on Thursday.

As they have done for the previous seven months, firms increased prices in June, albeit at a weaker pace as input cost pressures eased. The output prices index dipped to 51.8 from 52.4.

Firms operating in the bloc's dominant service industry did not perform as expected. The services PMI fell to 54.7 from 56.3, well below even the most pessimistic forecaster in a Reuters poll of over 40 economists.

n one bright spot, the employment index held at May's 53.8. It has only been higher than that once since early 2008, in March of this year.

Factories had a better month than predicted. The manufacturing PMI climbed to a more than six-year high of 57.3 from 57.0. The Reuters poll suggested it would dip to 56.8.