Ryan Felsman, Senior Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.

Economics | June 29, 2020

Petrol prices lift for Queensland school holidays Record Aussie gold export earnings Weekly Petrol Prices; Resources & energy exports; COVID-19 survey Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded

petrol fell by 1.9 cents to 119.4 cents a litre last week. Brisbane’s unleaded pump prices are averaging $1.23 a litre today, up by 11 cents a litre from the lows of the most recent discounting cycle on June 25.

Resources & energy exports: The Department of Industry, Science, Energy and Resources released the Resources & Energy Quarterly for June 2020. According to the Chief Economist, “We estimate Australia earnt a record $293 billion in 2019–20, and forecast exports of about $263 billion in 2020–21 and $255 billion in 2021–22. Gold export earnings are set to reach a record (of $32 billion) in 2020–21.”

COVID-19: Survey of households: According to the Australian Bureau of Statistics (ABS), “The survey found that three in five Australians aged 18 years and over (61 per cent) had a job working paid hours in mid-June. This was the first time since early March that the estimated proportion of Australians who had a job working paid hours rose above 60 per cent. The proportion of people who reported they had a job but were not working paid hours steadily decreased from 7.6 per cent in early April to 3.5 per cent in mid-June.”

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers.

What does it all mean? Brisbane’s unleaded petrol prices are averaging $1.23 a litre today, up by 11 cents a litre from the lows of the

most recent discounting cycle on June 25, according to real-time fuel app MotorMouth. But motorists can still find pump prices below $1.06 a litre in Jindalee, Mount Ommaney, Inala, Eight Mile Plains and Loganlea. That said, prices have risen sharply in Brisbane’s northern and southern suburbs just as families hit the road for school holiday trips to the Sunshine Coast and Gold Coast regions.

Motorists in Melbourne should ‘fill up’ their tanks from Friday. Unleaded pump prices are averaging $1.15 a litre today - according to MotorMouth - and are set to fall further. And drivers in Sydney should ‘fill up’ if they see unleaded petrol below $1.10 a litre as they prepare to head off for the school holidays with unleaded pump prices

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Economic Insights. Petrol prices lift for Queensland school holidays

getting closer to the low point of the petrol price discounting cycle (wholesale price is currently $1.065 cents a litre).

Petrol retailers, however, continue to defend their profit margins with painfully slow price declines. In fact, pump prices are down just 10-17 cents a litre - on average - in both ‘big’ cities since peaking in mid-June.

Elsewhere, motorists in Adelaide should ‘fill up’ between Wednesday and Saturday with unleaded bowser prices expected to fall further from current averages of $1.17 a litre. Pump prices are down 20 cents a litre from the recent peak on June 23, but the petrol cycle has become unpredictable, with prices expected to lift this weekend.

Australia is on the cusp of overtaking China as the world’s largest gold producer. Aussie precious metal miners are amongst the most cost effective producers worldwide. And spending on gold exploration in Australia rose to a new record in the December quarter of 2019, while the annual total of more than $1 billion was about 20 per cent higher than the previous year, according to government estimates.

Surging demand for safe haven assets during the virus pandemic has pushed spot gold prices to near 8-year highs. Australia is set to benefit from the ‘gold rush’ with the Department of Industry, Science, Energy & Resources estimating that gold export earnings will hit a record-high $32 billion in 2020/21.

What do the reports and figures show? Petrol prices

According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 1.9 cents to 119.4 cents a litre last week. The metropolitan price fell by 2.8 cents to 119.3 cents a litre and the regional price was down 0.2 cents to 119.6 cents a litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 5 cents to 120.1 c/l), Melbourne (down by 8 cents to 118.7 c/l), Brisbane (down by 5.8 cents to 114.8 c/l), Adelaide (up by 15.1 cents to 129.1 c/l), Perth (up by 2.8 cents to 118.7 c/l), Darwin (up by 8.9 cents to 117.9 c/l), Canberra (up by 1.4 cents to 118.3 c/l) and Hobart (up by 1.1 cents at 122.3 c/l).

The smoothed gross retail margin (2-month rolling average) for unleaded petrol was steady at 3-month lows of 15.32 cents in the past week (24-month average: 14.2 cents a litre).

The national average diesel petrol price rose by 0.5 cents to 119.4 cents a litre over the past week. The metropolitan price also rose by 0.5 cents to 117.5 cents a litre and the regional price was up by 0.4 cents to 121 cents a litre.

Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was up by 2.9 cents to 105.5 cents per litre. Today, the average unleaded TGP stands at over 3-month highs of 106 cents a litre, up by 3.2 cents over the week. The terminal gate diesel price stands at 106.1 cents a litre, up by 1.1 cents over the week.

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 117.6c; Melbourne 115c; Brisbane 123c; Adelaide 116.9c; Perth 109.8c; Canberra 118.4c; Darwin 119.2c; Hobart 122.6c.

Last week the key Singapore gasoline price fell by US$4.80 a barrel or 9.6 per cent to US$45.30 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $7.25 or 9.9 per cent to $65.77 a barrel or 41.36 cents a litre.

Resources & Energy Quarterly – June 2020

The Department of Industry, Science, Energy and Resources released the Resources & Energy Quarterly for June 2020. According to the Chief Economist, “Our previous forecast was for commodity earnings to reach $299 billion in 2019–20 and then fall modestly. In this edition, we estimate Australia earnt a record $293 billion in 2019–20, and forecast exports of about $263 billion in 2020–21 and $255 billion in 2021–22. To give this better context: $263 billion is still the third largest resource and energy export figure in Australian history, and $263 billion is third highest.”

And, “Australia’s iron ore export earnings are still on track to top $100 billion in 2019–20, with the COVID-19 pandemic

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Economic Insights. Petrol prices lift for Queensland school holidays

having curtailed Brazilian supply. Gold — a safe haven in uncertain times — is set to be a strong performer, with prices surging to an 8-year high, and export earnings set to reach a record (of $32 billion) in 2020–21. However, COVID-19 has also resulted in sharp price falls for other commodities — most notably coal, oil and LNG. While Australia’s resources and energy sector has been relatively resilient to date, our forecast comes with significant risks: a second outbreak of COVID-19, another surge in trade tensions, or an unexpectedly slow global recovery.”

Household Impacts of COVID-19 Survey, 10 June - 15 June 2020

According to the Bureau of Statistics (ABS), “This publication provides information on the incidence and nature of impacts due to COVID-19, as experienced by households in Australia. The survey was conducted between 10 June and 15 June 2020.”

Key findings for the labour market:

According to the Australian Bureau of Statistics (ABS), “The survey found that three in five Australians aged 18 years and over (61 per cent) had a job working paid hours in mid-June. This was the first time since early March that the estimated proportion of Australians who had a job working paid hours rose above 60 per cent.

And, “The proportion of people who reported they had a job but were not working paid hours steadily decreased from 7.6 per cent in early April to 3.5 per cent in mid-June.”

Other key findings:

On household financial stress and stimulus payments:

“Two-thirds of Australians (66 per cent) reported their household finances remained unchanged, one in five (19 per cent) felt they had worsened and 16 per cent felt they had improved.

Almost all Australians (94 per cent) aged 18 years and over reported their household expects to be able pay bills received in the next three months.

Of the Australians receiving the JobKeeper Payment, approximately half (48 per cent) were receiving less income than their usual pay, one third (33 per cent) were receiving about the same and one in five (20 per cent) were receiving more.”

On travel intentions:

“More than half (55 per cent) of Australians reported they intend to go on a domestic holiday once COVID-19 travel restrictions ease.”

On spending intentions:

“A majority expected to increase their spending on recreational or leisure activities (74 per cent), eating out (74 per cent), private transport (73 per cent), personal care (70 per cent), childcare (66 per cent) and public transport (55 per cent) compared to their reduced expenditure during the COVID-19 restrictions.

The majority of Australians who had reduced expenditure on household furnishings (72 per cent) and clothing and footwear (52 per cent) expected to continue to spend lower amounts on these items as COVID-19 restrictions ease.

Expectations of those who had decreased their expenditure on take-away food were evenly split between those who expected to increase their expenditure (45 per cent) and those who expected it to remain the same as during the COVID-19 restrictions (48 per cent).”

What is the importance of the economic data? Weekly petrol prices data are compiled by ORIMA Research

on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

The Australian Bureau of Statistics (ABS) is providing weekly updates on the coronavirus impacts on job situation, health services, health precautions, social distancing, household stressors, support network, lifestyle changes.

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Economic Insights. Petrol prices lift for Queensland school holidays

What are the implications for investors? Aussies are emerging from the April virus lockdown with money ‘burning a hole in their pocket’. Pent up demand,

improving confidence, closed international borders and the re-opening of the economy have pushed up household spending intentions. Discretionary spending on recreational activities, dining out, personal care products and cars could lift in the near term if the recent ABS COVID-19 household survey is any guide.

The East Coast and Adelaide petrol price cycles are becoming increasingly unpredictable. But wholesale unleaded petrol prices have lifted to the highest level since the economic lockdown in late March, implying that $1 a litre petrol is now in the ‘rear vision’ mirror. That said, global crude oil prices are now under downward pressure on investor concerns that the “second wave” of the virus - especially in US ‘Sunbelt’ states - will potentially slow or halt the re-opening of economies and reduce demand for fuel.

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec