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Tuesday 13 December 2022

NAB survey rolls over

Business confidence turns negative

NAB's timely business survey saw most readings take another leg lower in November.

Business confidence has slumped from 4, to zero, to -4 over the past couple of months.

In particular confidence is now very low for consumer businesses, such as those in the retail sector. 

Business conditions have dropped more steadily from 24, to 22, to 20.

That's still an elevated level, but the gap between confidence and conditions has never been as large as it is today, and it's pretty clear that confidence will lead conditions significantly lower as we head into 2023. 

Source: NAB

Consumer confidence is absolutely in the toilet according to all private surveys, although Westpac recorded a fair bounce for mortgagors (who are presumably detecting that the peak of the interest rate cycle is getting close). 

Forward orders have declined from a reading of 14 to 5 over the past two months, while price pressures and labour costs are off their highs, which should take some of the sting out of inflation next year too.

The ABS Monthly Business Turnover Indicator was also released today, and it also showed retail turnover declining over the past two months.  

US inflation peaks

US inflation has clearly peaked, and the median market forecast is for the year-on-year reading to decline from 7.7 per cent to 7.3 per cent overnight.

This release will of course be watched extremely closely by markets.

Gas prices are now -35 per cent off their highs in the US. 

Commodity prices such as wheat and cotton have also fallen dramatically. 


Australia's petrol price fell -5.1 cents over the past week to the lowest level in 11 weeks at 175.9 cents per litre, though there should be plenty more to come given where oil prices have fallen to.

Diesel prices in Australia also fell -5.6 cent over the past week, but remain stubbornly high at 221.3 cents per litre.

Source: AIP

US recession and rate cuts?

A key question now is whether the US can avoid a recession (or at least a deep recession). 

Another key question is whether US inflation drops all the way back down towards the 2 per cent target, or whether higher wages growth causes inflation to stick around in the 3 to 5 per cent range for some time. 

Inflation swaps suggest that with the US Federal Reserve likely to take the funds rate up to 5 per cent, declines in auto and housing prices will see inflation dropping back to 2½ per cent by June 2023. 

Futures markets are convinced that the Federal Reserve will be cutting interest rates aggressively in the second half of 2023, which may account for stock market valuations holding up at today's levels, despite the recession headlines and likely decline in corporate earnings. 

Australia doesn't have wages rising so quickly, so interest rates aren't expected to rise so far (and the decline in the second half of 2023 is also likely to be more gradual).