Tag: NAB Forward Orders

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ASX Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the one on the right reflects stock market drawdown risk.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 54%, after declining from 64% two weeks ago. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index, while the US Bull-Bear Index makes up the remaining 40%.

ASX Bull-Bear Market Indicator

NAB forward orders increased to zero in June, but the 3-month moving average remains negative at -1.67.

Australia: NAB Forward Orders

China’s OECD composite leading index eased to 100.26 for June, but remains well above our 99.0 risk-off level.

China: OECD Composite Leading Indicator

Stock Pricing

ASX stock pricing increased to a new high of 87.0 percent, from a low of 67.85 percent in April, now in the extreme range.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

The PE of highest trailing earnings compares the current value for the All Ordinaries Index to the highest preceding four consecutive quarters of earnings for the index, removing distortions from sharp earnings falls during recessions. The current multiple of 17.5 is the highest since the Dotcom era.

All Ordinaries: PE of Highest Trailing Earnings

Conclusion

The ASX is now in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.

Acknowledgments

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ASX Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

The ASX Bull-Bear Market indicator at 64% reflects a mild bull market.

Four out of six indicators from Australia and China (our largest trading partner) signal risk-on. These have a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, also unchanged, makes up the remaining 40%.

ASX Bull-Bear Market Indicator

The OECD composite leading indicator for China improved to 100.4 in May, well above the 99 warning level for a contraction.

OECD Composite Leading Indicator for China

However, NAB forward orders continue to warn of a contracting Australian economy in May, although the pace of the decline has slowed.

NAB Forward Orders

Australian private dwelling approvals are also weak. The 3-month moving average for April, at 15.2K, is close to its red signal line, at 15.1K, which signals risk-off.

Australian Private Dwelling Approvals

Stock Pricing

ASX stock pricing increased to 86.19 percent, exceeding the high of 85.83 in February 2025, from a low of 67.85 nine weeks ago. The reading warns that stock pricing is extreme.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX signals a mild bull market, but valuations are now extreme, increasing the risk of a significant drawdown.

Acknowledgments

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Australian Jobs versus Rate Cuts

The RBA is expected to cut interest rates by 50 basis points next week, with a further 25 basis points in June, according to the NAB economics team.

CPI declined to a low annual rate of 2.4% in the first quarter, well within the RBA’s target range. However, the rate jumped to 0.9% (3.6% annualized) in the latest quarter.

Australian CPI - Quarterly & Annual

While this gives the RBA some leeway, the labor market remains strong, warning of the dangers of cutting too early.

Unemployment is a healthy 4.1%.

Australia: Unemployment

Employment continues in a strong uptrend.

Australia: Employment

The wage price index reversed its recent decline, rising by 3.4% over the past 12 months, while the quarterly rate increased to 0.9% (3.6% annualized), signaling underlying inflationary pressure.

Australia: Wage Price Index

However, monthly hours worked dipped slightly, with the monthly trend falling by 0.1%, warning of a slowdown ahead.

Australia: Aggregate Monthly Hours Worked

Business confidence is also weak. NAN April business confidence remains below zero, while current business conditions are steadily declining.

NAB Business Confidence & Conditions

Cash flows are suffering, according to the NAB business survey, falling to their lowest level since 2020.

NAB Business Cashflow

Forward orders have been contracting since 2023.

NAB Business Forward Orders

The slowdown has affected the retail and wholesale industries the most, but mining and transport & utilities show the steepest monthly declines.

NAB Business Forward Orders by Industry

Declining capital expenditure warns of an economic contraction and slowing growth ahead.

NAB Business Capital Expenditure

Conclusion

The Australian economy is gradually slowing, but unemployment remains low, leaving the RBA with a difficult choice: cut rates in anticipation that unemployment will rise, or wait for the actual data? We would argue that they should hold firm while unemployment is low, but that seems to be a minority view.

Acknowledgments

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