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Economic events provide guidance for investors

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by Craig James
 
A busy week

The next fortnight has it all: ‘top shelf’ economic data, an interest rate decision; the Reserve Bank quarterly report on the economy; and two State, and one Federal Budget. There are no stand-outs – each key economic event can provide guidance for investors.

On Monday, the Performance of Services is released together with the TD Securities/Melbourne Institute monthly inflation gauge and dwelling approvals. The monthly inflation gauge is the timeliest measure of inflationary pressures. Excluding volatile items, inflation is up 2 per cent on a year earlier – in line with the decade average and at the bottom of the Reserve Bank 2-3 per cent target range. And simply, that means interest rates are going nowhere.

Dwelling approvals are tipped to have fallen 5.0 per cent in March after falling by 5.0 per cent in February. Approvals are up 23.2 per cent over the year. The current number of dwelling approvals (16,669) is well above the decade average (13,489) and five-year average (13,859). Home building has clearly replaced mining as the driver of the economy.

On Tuesday the Reserve Bank Board meets but no change in rate settings is expected. In terms of economic data, the trade surplus is tipped to have lifted from $1.2 billion to $1.7 billion in March. And the Victorian State Budget is released.

On Wednesday retail trade data is due for the March month and March quarter. The importance of the latter is that detail on prices and volumes is expected. We expect that retail trade rose 0.5 per cent in March with the volume of sales tipped to rise 1.5 per cent in the quarter. In real terms, spending is currently growing faster than the decade average and this will still be the case if sales rise as expected.

Consumer spending is healthy at present, meaning that the Federal government must be careful not to talk the economy down in order to highlight medium-term budget challenges.

On Thursday, the Bureau of Statistics (ABS) issues the April employment data. In March the data surprised, with unemployment falling from 6.1 per cent to 5.8 per cent – one of the biggest one-month falls recorded.

In April, job growth may have slowed with employment up just 9,000. With little change in the proportion of people looking for work, the unemployment rate may have edged up to 5.9 per cent. But even with the modest lift in the month, the jobless rate has probably peaked.

On Friday, the Reserve Bank releases its quarterly Statement on Monetary Policy. Little change in economic growth forecasts is expected but near-term inflation forecasts may be modestly tweaked downwards, confirming that interest rates are on hold until at least late in the year.

Overseas: Quiet times in US; China grabs the spotlight

It doesn’t happen regularly, but a quiet week is in prospect on the economic front in the US in the coming week. The highlight is probably the Institute of Supply Management (ISM) gauge on services activity (due Monday). Of more interest, Chinese trade and inflation data are due late in the week.

And it is that ISM services index that kicks off the week in the US on Monday with economists tipping a lift from 53.1 to 54.1 in April. Any reading over 50 signifies an expansion of the services sector.

On Tuesday, data on international trade (exports and imports) is released together with the weekly figures on chain store sales – a guide to consumer spending. The trade deficit may have narrowed from US$42.3 billion to US$40.5 billion in March.

On Wednesday the weekly data on housing finance is issued together with figures on consumer credit (personal finance) and the March quarter figures on productivity and labour costs.

On Thursday the regular weekly data on claims for unemployment insurance is issued. While on Friday the US data of note are the figures on wholesale sales and inventories.

So, as noted above, hardly an inspiring week of US economic data for investors.

In China, the focus is on trade data (exports and imports) on Thursday while both the producer and consumer prices indexes are issued on Friday. Economists expect that the trade surplus rose from US$7.71 billion in March to US$11 billion in April.

And while the extent of business deflation may have eased in April (producer prices likely fell 1.8 per cent over year to April), the rate of consumer price inflation may have also eased to 2.2 per cent in April. If inflation remains under control, Chinese authorities may have more scope to stimulate the economy if needed.

Banks in focus

In the coming week more major banks are to issue earnings results. ANZ was first out on May 1 with Macquarie due on May 2. Westpac is to follow on May 5 and NAB is to report on May 8. The bank share price index is up 10 per cent over the year and near record highs.

Upcoming economic and financial market events

Australia

  • Monday 5 May - Building approvals (March); Performance of Services (April); TD Inflation gauge (April)
  • Tuesday 6 May - Reserve Bank Board meeting; International trade (March); Victoria State Budget
  • Wednesday 7 May - Retail trade (March and March quarter)
  • Thursday 8 May - Tourist arrivals (March); Employment (April); WA State Budget
  • Friday 9 May - Statement on Monetary Policy


International

  • Monday 5 May - US ISM services (April)
  • Tuesday 6 May - US International trade (March)
  • Wednesday 7 May - US Productivity Labour Costs (March quarter); US Consumer credit (March)
  • Thursday 8 May - China Trade (April)
  • Friday 9 May - China inflation (April); US Wholesale sales & inventories (March)

 

Published: Monday, May 05, 2014

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