Australia Leading Index Up, 1st Above-Trend Signal Since May

     SYDNEY (MNI) - From Westpac-Melbourne Institute's Leading Index for October

published Wednesday.

                                                         October  September

---------------------------------------------------------------------------

Leading Index                                              97.67      97.54

6-Mo Annualized Deviation From Trend, percentage points    +0.44      -0.02

     FACTORS: The leading index rose in October pointing to above-trend momentum

for the first time since May. Despite the recovery, the index is still below the

level in May when the growth rate printed +0.67% compared with +0.44% in

October. 

     The main shifts in component contributions over this period have been from

renewed softness in commodity prices in Australian dollar terms (-0.24ppts),

slowing growth in US industrial production (-0.19ppts) and a more mixed

performance from the S&P/ASX200 (-0.16ppts). This was partially offset by a

widening yield spread (+12ppts) and small improvements in other components

(adding +0.24ppts on a combined basis).

     TAKEAWAY: According to Westpac, while the leading index suggests some of

the headwinds to growth evident earlier in the year have eased, it looks 

fragile with key negatives around commodity prices, housing, labor market

conditions and the consumer likely to contain any upswing in 2018

     COMMENTS: Westpac chief economist Bill Evans expects the RBA to leave the

cash rate on hold in December. He notes the RBA made some significant changes to

its forecast in the November Statement on Monetary Policy and his interpretation

of the forecast changes is that whereas in August the RBA expected to be raising

rates sometime in 2018 that prospect is now much less clear. 

     "In fact, if their lower inflation forecasts prove correct the Bank is

unlikely to move in 2018," he said, adding,"We are maintaining our long held

view that rates will remain on hold through 2018."

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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