[CommSec Research]Finally! Relief in sight for motorists

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Important Information The summary and attached report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker. Finally! Relief in sight for motorists NAB Business Survey; Weekly Petrol Price; Job Ads According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.3 cents per litre to 145.9 cents a litre in the week to May 8 – the highest level in 30 months. In Australia the terminal gate (wholesale) price hit fresh 30-month highs, however given slide in global oil prices it is likely that the terminal gate price has peaked. CommSec believes petrol prices could fall around 8-10 cents a litre over the next fortnight or so - saving motorists at least $7 every time they fill up the car. The NAB business confidence index eased from +9.1 to +6.8 in April. The business conditions index also recorded a weaker reading, falling from +9.4 to +4.6 in April. Forward looking sub-indices were disappointingly weaker. Profits slumped, while new orders fell back into contractionary territory. Job market is likely to tighten at a modest pace in coming months. The ANZ job ads index rose by a 1.0 per cent in April after a 1.3 per cent rise in the prior month. What does it all mean? There is great news ahead for motorists. Prices are holding at fresh 30-month highs however it is likely that conditions will improve from here. Global oil prices have slumped in the past week, with the Singapore unleaded price falling by the biggest weekly margin since September 2009, and as a result motorist are in for some massive savings at the pump in just over a fortnights time. The global oil market has been well supplied despite the Middle East tensions and the past week has seen a return to fundamentals rather than speculation. The upcoming OPEC meeting in June has also been a key factor in driving prices lower, with OPEC member nations looking at potentially increasing oil supply in coming months.  Overall CommSec expects prices to track sideways over the coming week before sliding by around 8-10 cents a litre in the following fortnight. Businesses have weathered a storm of negative influences over the past year, from rate hikes to the lack of consumer spending and even disastrous weather conditions. Added to which the strength of the Australian dollar continues to hamper inbound tourism and export orientated sectors. Given all these mitigating factors it is hardly a surprise that business conditions and confidence remain relatively subdued. The weakness in consumer spending, a slowdown in housing construction, and the multiple interest rate hikes of last year have all taken their toll on business confidence and conditions. Key forward looking sub-indices all continue to suffer. The profitability index remains weak while the all important forward orders index is once again going backwards. In fact the new orders sub-index has been contracting for nine out of the past 12 months. It’s clear, that outside of the mining sector business owners are still trimming future orders, and this is likely to remain the case as long as profitability continues to remain weak. Given that retailers are aggressively discounting, borrowing costs are rising, and the higher Aussie dollar is curbing manufacturing exports, it is likely that overall activity will remain subdued in the near term. Added to which the higher oil price will also feed straight through to petrol prices adding a further burden on household budgets and consumption. The negative momentum is clearly why the Reserve Bank slashed near term growth forecasts in its Statement on Monetary Policy. CommSec expects the next rate hike to take place in August. It is not all bad news. In fact the longer term prospects for the Australian economy are certainly more optimistic. And if interest rates remain on hold over the next couple of month’s businesses and consumers can once again focus on investment and activity. The rebuilding phase following the floods and cyclone, should result in growth and activity rebounding quite dramatically in the second half of the year. The labour market has been the shining indicator over the past year and the latest job ads data suggests that eemployment growth is likely to be remain healthy in coming months. The ANZ job ads series has once again shown moderate growth. Importantly while the labour market is likely to strengthen in coming months it is unlikely to see robust growth akin to 2010 – especially given that the domestic economy has lost momentum in recent months. What do the figures show? National Australia Bank Business Survey: The National Australia Bank business confidence index eased from + 9.1 to +6.8 in April. The business conditions index fell from 9.4 to 4.6 in April. The index of trading conditions recorded deteriorated in April, down from +14.7 to +5.6; profitability fell from +10.3 to +3.6; employment improved from +3.2 to +4.6; and forward orders fell from +3.1 to -0.1. The monthly reading of labour costs rose sharply from 0.9 per cent to 1.4 per cent in April. NAB noted that annual growth of labour costs stands at 4.4 per cent in April up from 3.7 per cent recorded in March. Inflationary pressures are well contained. Retail prices were flat in April after a 0.1 per cent quarterly rise in March. Purchase costs increased by a 0.8 per cent quarterly rate, and the annual rate held steady at 2.7 per cent. Capacity utilisation rose from 81.5 per cent to 81.8 per cent in April – marginally above the decade average of 81.6 per cent. Petrol prices: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.3 cents a litre to 145.9 cents a litre in the week to May 8. The metropolitan price rose by 1.7 c/l to 145.7 c/l, while the regional average price rose by 0.7 c/l to 146.3 c/l. Average petrol prices across states over the past week were: Sydney (up 0.5 cents to 145.9 c/l), Melbourne (up 1.6 cents to 144.7 c/l), Brisbane (up 3.6 cents to 148.5 c/l), Adelaide (up 5.1 cents to 143.2 c/l), Perth (up 0.2 cents to 145.0 c/l), Darwin (up 1.3 cents to 152.0 c/l), Canberra (down 0.8 cents to 144.8 c/l) and Hobart (up 1.1 cents to 150.9 c/l). The national average wholesale (terminal gate) rose to a fresh 30-month high of 139 cents a litre today, up by 1.4 cents a litre over the past week. Last week, the key Singapore unleaded petrol price fell by US$16.30 (11.8 per cent) to US$122.02 a barrel. In Australian dollar terms the Singapore gasoline price fell by $12.87 (10.1 per cent) over the week to $114.06 a barrel. Job advertisements: The combined number of internet and newspaper job advertisements, as tracked by ANZ, rose by 1.0 per cent in April after a 1.3 per cent increase in March. Internet job ads rose by 1.2 per cent in the month, while newspaper job ads fell by 3.4 per cent. In annual terms job ads are up 20.5 per cent. What is the importance of the economic data? The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels. Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates. What are the implications for interest rates and investors? The longer term prospects for the Australian economy remain robust. And if interest rates remain on hold over the next couple of month’s businesses and consumers will once again focus on investment and activity.  The rebuilding phase following the floods and cyclone, should result in growth and activity rebounding quite dramatically in the second half of the year. The labour market will be one of the key hot issues that the Reserve Bank will be focusing on in coming months. As long as the supply of labour remains adequate, the Reserve Bank can remain on the interest rate sidelines. CommSec expects the next rate hike to take place in August.