We had argued that the gap between upbeat business confidence and poor consumer spirits might close to the downside, and this week we saw both fall. The AUD has been resilient, but we position for further downside by adding Janus Henderson (JHG) to our Model Portfolio.
Sentiment jaws closing to downside:Last week, we cut our GDP growth forecast for 2017 to 1.2%, well below the bottom of consensus, on the view that consumption is being crunched by tighter credit conditions and a sustained fall in real incomes (see Australia Macro+: Asia Insight: Crunch Time,5 Jun 2017). The key upside risk would be through a solid pickup in full-time employment and wage growth,and we have been on watch to see whether improving business sentiment through April would be sustained, or whether the gap to subdued consumer sentiment would close to the downside. This week, we received crucial updates, including the first post-Budget read on NAB business confidence, with both surveys indicating a deterioration.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
