WEEKLY ECONOMIC COMMENTARY Week beginning 2 nd October 2017

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1 WEEKLY ECONOMIC COMMENTARY Week beginning 2 nd October 2017 ECONOMIC DATA ROUNDUP DATA RELEASED LAST WEEK Economic Data Period Actual Previous ABS Job Vacancies Index August quarter +3.9% +1.5% Private Sector Credit August +0.5% +0.5% The ABS Job vacancies index increased by 3.9% in the three months to August to be up 14.0% over the year. The number of job vacancies in the private sector increased by 3.8% in the quarter (up 13.7% annually), while vacancies in the public sector were up 4.5% (+16.8% annually). Private sector credit increased by 0.5% in August to be up 5.5% over the year. Housing credit was up 0.5% for the month (+6.6% annually), business credit was also up 0.5% (+4.5% annually) while personal credit fell 0.2% in August (-1.1% annually). The two AFL clubs with the longest active Grand Final appearance droughts will meet in Saturday s decider at the Melbourne Cricket Ground. Adelaide last played for the premiership flag in 1998, however it s been an even longer wait for Tigers fans, with Richmond s last appearance coming in 1982, back when the first fax machine whirred into life and the Rubik's Cube took the world by storm. So long has been the gap for both clubs, it will be the first time since the inaugural decider in 1898 that all players from both teams will be playing in their first Grand Final. The Crows have the edge in total supporter base with 541,000 fans (the fifth largest for total AFL supporters in 2017) with support heavily concentrated in their home state of SA (76.5%). Their opponents the Tigers have 442,000 supporters around Australia, but have one of the AFL s best conversion rates of supporters to members ranking fourth and converting 16.4% of supporters to members in Of the two clubs, Richmond are clearly proficient at attracting younger supporters, with 18.2% of Richmond supporters under 25 compared to only 12.5% of Adelaide supporters a surprise statistic considering the unsuccessful Richmond teams of recent decades. The age profile of the respective supporter bases underlies why more Adelaide supporters (63.5%) watch the AFL on TV than Richmond supporters (59.8%), and also, conversely, why more Tigers supporters (11.0%) actually play Australian Football compared to only 6.4% of Adelaide supporters. The match-up is set to break one long-suffering team s drought and to prolong the other. Source: Bloomberg and Roy Morgan Research, 29th September Data over the next week Economic Data Date Period Forecast Previous ANZ Job Ads 3 Oct Sept n/a +2.0% RBA Board Meeting rates decision 3 Oct October 1.50% 1.50% Building Approvals 3 Oct August -3.0% -1.7% Retail Trade 5 Oct August +0.3% +0.0% International Trade in Goods & Services 5 Oct August +$900m +460m Weekly Market Commentary 1

2 ECONOMIC COMMENTARY LAST WEEK In the absence of any significant data releases, markets turned to events and speeches offshore to drive direction last week. After a few weeks where yields have drifted higher, some flight to quality buying, mainly on geopolitical concerns, reemerged early last week to push yields slightly lower. A press conference by North Korea s foreign minister where he stated that recent White House rhetoric is a declaration of war and North Korea is therefore within its rights to make countermeasures and shoot down US planes drove the risk-off sentiment. The rally however was limited as US Federal Reserve chair Janet Yellen gave a speech last week where she said that it would be Imprudent to keep monetary policy on hold until inflation hits 2%. This saw market pricing for a US rate hike in December rise to over 75%. Federal Treasurer Scott Morrison released the Final Government Budget Outcome for 2016/17 last week. There was no fanfare for the document s release which meant that many probably missed it. The document showed a $4bn improvement in the Federal Government s fiscal position relative to earlier (May) expectations, largely due to increased tax receipts and a lower level of payments made under the NDIS. The week finished on a quiet note with public holidays and the end of financial year for major banks reducing market activity. By the close of trading on Friday, the 90-day bank bill was trading at 1.71% from 1.72% a week earlier. In the long term maturities, 3 and 10 year bond yields closed at 2.15% and 2.82% respectively, from 2.16% and 2.84% a week earlier. CURRENCY The comments from the US Federal Reserve chair Janet Yellen that the Fed needs to continue gradual rate hikes saw the US dollar strengthen last week, which pushed the Australian dollar lower and back through USD0.79 last Tuesday. The AUD consolidated around USD for most of the week before a small rally into the close on Friday. By the close on Friday, the Australian dollar was trading at USD from USD a week earlier. EQUITIES Equity markets had a firm start last week thanks to a rebound in tech stocks and some positive sentiment on the back of an increase in rate hike expectations. The release of the latest version of the President Trump/Republican tax reform plan (to cut the corporate tax rate to 20% from 35%) was interpreted to lift both US and global economic activity, which also supported global share markets last week. Our market traded in a narrow (50 point) range for most of the week, giving back the early gains to close virtually unchanged. One big mover last week was the oil price. Political tensions between Turkey and Kurdistan (Iraq) escalated following an independence referendum held last week. Turkey's President raised the prospect of shutting down Kurdish oil exports that pass through its territory if the referendum was successful. By the close on Friday the S&P/ASX200 Index was trading at 5,685.8 compared to 5,682.1 a week earlier. THIS WEEK The economic calendar picks up once again in this holiday-shortened week ahead with the monthly RBA Board meeting as well as retail trade, building approvals and international trade data for August. There is also a range of second tier data due. While the RBA would be pleased that domestic data has been favourable since the September Board (namely GDP and employment), the RBA is widely expected to leave rates on hold and maintain a neutral stance on monetary policy. INTEREST RATE VIEW While all the talk this week has been around offshore events (as well as the footy finals) with increased speculation of a US rate hike in December and Trump potentially delivering tax cuts, our market retained a positive tone with interest rates and equities stronger but the Australian dollar weaker. Financial market pricing still has one RBA rate increase now fully priced in by July/August next year. Economic Data 12 months ago 6 months ago 3 months ago 1 month ago Now Official Cash Rate day Bank Bill day Bank Bill year swap year swap year swap year swap AUD/USD S&P/ASX200 Index 5, , , , ,

3 CHART OF THE WEEK Spreading the joy: Australia s growing taste for butter Margarine or butter? It s a debate that has been raging for decades, between two very different schools of medical/nutritional thought. And according to the latest findings from Roy Morgan Research, butter is currently winning the argument, being purchased by far more Australian grocery buyers than margarine or dairy spreads/butter blends in an average four weeks. In the 12 months to June 2016, 54.7% of Australian grocery buyers 14+ purchased butter in an average four-week period: a substantial increase on the 47.2% who bought it in the 12 months to June Meanwhile, 44.6% of grocery buyers bought margarine, down from 56.0% in 2012 (a 20% decline); and 30.4% purchased dairy spreads/butter blends (pretty much unchanged from 30.1%). The butter boom: Australian grocery buyers changing habits Source: Roy Morgan Single Source (Aust), July 2015-June 2016, n=6,138. Base: Australian grocery buyers 14+ As the figures above suggest, many grocery buyers purchase more than one of these products in the same four-week period. Nearly one in five (18.5%) of grocery buyers purchase both butter and margarine, 16.5% buy both butter and dairy spread/butter blend, 11.5% purchase margarine and dairy spread/butter blend, and 8.7% buy all three! Most popular brands Among buyers of each type of spread, supermarkets own brands feature prominently, with different varieties of Western Star, Devondale and Flora also being popular choices. Almost 30% of grocery-buyers who purchase butter in an average four weeks opt for a supermarket brand, putting Western Star (19.9%) in second spot; and 18% of grocery buyers who purchase margarine in an average four weeks also choose home-brand, ahead of the 10.0% who choose Nuttelex. Devondale Dairy Soft (18.1%) dominates the butter-blend/dairy-spread market, with supermarket brands in third spot (12.1%) refer chart below.

4 CHART OF THE WEEK Top-selling margarine, butter, and butter blend/dairy spread brands Source: Roy Morgan Single Source (Aust), July 2015-June 2016, n=5,046. Base: Australian grocery buyers 14+who purchased margarine/butter/dairy spreads in last 4 weeks Norman Morris, Industry Communications Director, Roy Morgan Research, says: Opinion is divided over whether butter is better than margarine or vice versa, with most health experts advising that eating too much of either is prejudicial to the health, due to their high albeit different kinds of -- fat content. The argument is too complex to go into here: suffice it to say that, while butter was once considered the bad guy for its saturated fat content, it has since gained ground at the expense of margarine, which has recently been under scrutiny for being too processed. Certainly, Roy Morgan data shows that the trend towards butter over margarine continues to build, with more grocery buyers choosing the former over the latter. However, it also suggests that many Australians are hedging their bets to a certain extent, buying both. It s quite revealing that butter consumption does not differ greatly between age groups (and is consistently much more widely consumed than the other spreads), but margarine consumption tracks steadily upwards past the age of 35, peaking with folks aged 65 or older. This may be due to older Australians still remembering when margarine was promoted as the healthier alternative of the two, or simply a cautionary measure to cover their bases. After all, we generally become more health conscious as we get older out of necessity, if not choice! (The fact that two of the top-selling butter brands have reduced salt content also speaks volumes ) Butter, margarine and butter-blend brands wishing to negotiate this tricky market and convince consumers to choose their product would be in a far better position to do so equipped with the holistic, in-depth knowledge of grocery buyers attitudes, purchasing habits and demographics that only Roy Morgan Single Source can provide. Source: Roy Morgan Research Finding No rd September 2016

5 About Rural Bank Rural Bank has been a wholly-owned subsidiary of Bendigo and Adelaide Bank Limited since 2010 and is the only Australian-owned and operated dedicated agribusiness bank in the country. From 1 July 2014, Victorian agribusiness lender, Rural Finance joined Rural Bank as a division of Bendigo and Adelaide Bank Limited. As a specialist rural lender, Rural Finance has been fostering the sustainable economic growth of rural and regional Victoria for 70 years. Rural Bank is supporting farmers and farming communities by providing them with specialist financial tools, industry insights and investment into the future of the Australian agribusiness sector. Postal Address: PO Box 3660, Rundle Mall, SA 5000 Telephone: Facsimile: service@ruralbank.com.au Disclaimer: This report has been prepared by Rural Bank Treasury and is based on information obtained from public sources that are believ ed to be reliable. Whilst all care has been taken in compiling the information in this report, Rural Bank Limited ABN AFSL / Australian Credit Licence makes no representation as to the accuracy, completeness or timeliness of such information. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Rural Bank and are subject to change without notice. Rural Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein changes or subsequently becomes inaccurate. This report is provided for informational purposes only and does not take into account personal circumstances, objectives, financial situation or needs. The information contained within this report should not be relied upon without consulting independent, professional advice carefully to consider the appropriateness of the advice to your personal circumstances. Rural Bank disclaims all liability in relation to any loss or damage suffered by the use of or reliance upon any information contained herein or in any attachment or annexure hereto by any person. Copyright Rural Bank Ltd ABN (A250677) (06/17)