According to Frank Uhlenbruch, investment strategist in the Janus Henderson Australian Fixed Interest Team, Australia’s market outlook and economic forecast look positive in the months ahead.
Mr Uhlenbruch, who has just released his Australian Economic View report for the month of May, said prospects for an extended period of accommodative fiscal and monetary policy settings, along with positive economic news, have helped support risk appetite.
“The Australian economy looks to be at peak growth rates as it makes up for lost time spent in lockdown. Businesses and consumers are bullish on the outlook and the labour market has improved quicker than expected,” he said.
“Yields at the shorter end of the yield curve remained anchored around the Reserve Bank of Australia’s (RBA) 0.10 [of a percentage point] cash rate and three-year government bond yield target, but lifted beyond that as markets began to discount future tightening. The November 2024 government bond yield ended the month at 0.297 [of a percentage point], 4 basis points (bps) below its intra-month peak.
“After February’s sharp lift, longer-dated government bond yields continued to trade in a relatively narrow range even though economic and prices data printed on the stronger side. The 10-year government bond yield traded in a 14 bps range to end the month 4 bps lower at 1.75 per cent. The 30-year government bond finished 9 bps lower at 2.67 per cent.”
Further, Mr Uhlenbruch noted that partial demand indicators point to strong March quarter momentum spilling over into the June quarter.
“Business conditions, along with business and consumer confidence, have roared back, in some cases to record-high levels,” he added, noting that labour market conditions have also continued to show improvement despite the JobSeeker program concluding at the end of March.
“The number of jobs lifted by a stronger-than-expected 70,700 over March, while the participation rate lifted to a record high of 66.3 per cent and the unemployment rate fell to 5.6 per cent. In line with improving business conditions, hiring intentions remained very strong,” Mr Uhlenbruch said.
Mr Uhlenbruch also provided his top predictions for how the Australian economy is set to play out in the month ahead, flagging that he believes it’s on track to be at peak levels “as it makes up for lost time spent in lockdown”.
“Businesses and consumers are bullish on the outlook and the labour market has improved quicker than expected, limiting hysteresis effects. We look for the economy to expand by around 5 per cent over 2022 before growth moderates to just under 3 per cent the year after,” Mr Uhlenbruch said.
“A much stronger-than-anticipated recovery gives the government more headroom in the upcoming May budget. While the budget deficit will be significantly lower than projected, the Treasurer has already signalled there will be no premature shift to austerity, with budget repair contingent on the unemployment rate falling to below 5 per cent.
“While we expect the RBA to upgrade their forecasts in the upcoming May Monetary Policy Statement, we don’t expect them to shift from their dovish outcomes-based stance.”
Mr Uhlenbruch concluded: “In our view, the stance of monetary policy will only change once the tightening trifecta conditions have been met. These are an unemployment rate close to 4 per cent, actual inflation at 2 per cent or above on a sustainable basis, and wages growth of at least 3 per cent.”