The inventory figure is the most consequential data point here for GDP-watchers, since a 0.3 percentage point drag from private non-farm inventories is a meaningful subtraction heading into Tuesday’s national accounts release. Because the drawdown was concentrated in mining inventories, it points to a likely offsetting boost from resources exports in the same GDP report, which could partially cushion the headline growth number even as the inventory component itself detracts. The softer-than-expected private sector credit growth suggests some cooling in borrowing momentum, which is consistent with the more cautious tone the RBA has struck on the economy’s spending pulse. On profits, the split between a strong mining rebound and a soft non-mining result, particularly the fall in financial and insurance services, points to an economy where sector-level divergence remains wide, and the smaller after-IVA profit gain of 0.9 percent suggests some of the headline profit strength is a valuation effect rather than pure operating improvement. Together, the data leave the market focused squarely on Tuesday’s GDP print to see how these cross-currents net out.

Australia — July/Q2 data:

Summary:

• Australian private sector credit rose 0.6% month-on-month in July, below the 0.7% forecast and down from 0.8% in June, with annual growth easing to 8.4% from 8.5%.
• Q2 company operating profits rose 1.8% quarter-on-quarter, missing the 2.0% forecast but rebounding sharply from a 1.3% contraction in Q1.
• Business indicators show private non-farm inventories fell 0.2% in Q2, well short of an expected 0.5% rise, and will subtract 0.3 percentage points from real GDP.
• The inventory drawdown was concentrated in mining, which points to likely growth payback in resources exports in the same GDP report.
• Mining profits jumped 6.8% quarter-on-quarter, while non-mining profits fell 1%, dragged down by a large decline in financial and insurance services.
• After the inventory valuation adjustment, profit growth was more modest at 0.9% quarter-on-quarter.

Key takeaway: Credit growth and company profits both came in below expectations but improved on the prior period, with profits rebounding sharply from Q1’s contraction. The inventories miss is the more market-relevant number given timing, a negative print against an expected 0.5% gain points to a drag on the GDP release due later this week.

This article was written by Eamonn Sheridan at investinglive.com.