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Ryan Felsman
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Australia: Reserve Bank in focus

Friday, June 14, 2019

In the coming week, Reserve Bank events dominate. Governor Philip Lowe’s speech in Adelaide on Thursday will hog the headlines. The minutes of the June 4 Board meeting are issued on Tuesday. On the data front, the Bureau of Statistics (ABS) provides updates on population growth, property prices and jobs. Skilled internet job vacancies figures are also issued.

On Tuesday

The week kicks off on Tuesday with a speech by the Reserve Bank’s Head of Financial Stability Jonathan Kearns at the Property Leaders’ Summit in Canberra at 9.15am AEST. And the Reserve Bank Board’s June 4 monetary policy meeting minutes will be keenly observed. At that meeting rates were cut for the first time in almost three years.

Also, on Tuesday, the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And the ABS released its quarterly publication “Residential Property Price Indexes”. Apart from home prices there is other data covering the average value of homes and changes in the number of homes in each state.

On Wednesday

On Wednesday the Department of Jobs and Small Business releases the Internet Vacancy Index for May. Vacancies have fallen for four successive months and are down by 5.8% over the year to April – the weakest growth rate in five years.

On Thursday

On Thursday the Commonwealth Bank issues its Business Sales Index for May. But all eyes with be on Reserve Bank Governor Philip Lowe’s speech at the CEDA luncheon in Adelaide at 11.15am AEST. The July 2 Reserve Bank Board monetary policy meeting is considered a ‘live’ meeting for another potential interest rate cut. Economists, therefore, will be scrutinising the commentary very closely for further clues on the policymaker’s views. 

Also, on Thursday, the ABS releases the December quarter population estimates. Annual population growth probably held near 1.5-1.6% – still one of the fastest rates across advanced nations. And detailed estimates on the job market for May are also issued. The data will include industry estimates of employment.

On Friday

On Friday, the Commonwealth Bank’s ‘flash’ services and manufacturing gauges for June are issued.  

Overseas: US Federal Reserve interest rate meeting dominates

In the US, the Federal Reserve interest rate decision is the key focus of investors over the coming week. US housing data and manufacturing gauges also feature prominently. Home prices data is scheduled in China.

On Monday

The week begins on Monday in the US when the New York Empire State Manufacturing Index is issued together with the National Association of Home Builders’ (NAHB) Housing Market Index for June. Home building sentiment in the north-eastern region of the US rose by 10 points to 65 points in May - the highest level since October 2005.  

On Tuesday

On Tuesday in China, home price data is scheduled. Home prices rose 10.7% in the year to April – the strongest growth in two years. Economists are forecasting prices to grow by 12% over the year to May. 

Also, on Tuesday in the US, the regular US weekly data on chain store sales is scheduled along with the monthly update on housing starts and building permits for May. Starts rose by 5.7% to 1.235 million units in April, driven by gains in the construction of both single and multi-family housing units. Sentiment was boosted by declining mortgage rates and drier weather in the Mid-west region of the US. A 0.4% lift is tipped in May.

On Wednesday

On Wednesday the US Federal Reserve Open Market Committee (‘FOMC’) hands down its interest rate decision following its two-day meeting. No change in the Federal Funds target rate of 2.25-2.50% is expected in the near term after the FOMC’s ‘dovish’ commentary earlier this year.

While US policymakers are expected to remain data-dependent, economic growth is expected to slow to an annual growth rate of closer to 2% by year-end as the corporate tax cut stimulus fades. But late-cycle growth remains supported by solid consumer spending on the back of labour scarcity and low joblessness. That said, persistently low inflation and the intensification of US-China trade tensions could necessitate policy action.  

Also, on Wednesday, the regular weekly reading on new mortgage applications are released.

On Thursday

On Thursday, the US current account deficit is forecast to narrow to US$130 billion in the March quarter from US$134.38 billion in the December quarter. 

Also, on Thursday, the influential Philadelphia Fed Manufacturing Index, Conference Board Leading Index and the usual weekly data on claims for unemployment insurance are all released. The ‘Philly’ Fed factory gauge will likely remain sensitive to negative trade headlines. And growing inventories are also weighing on US output. A weakening in conditions is expected in June after the US increased import duties (tariffs) from 10 per cent to 25% on US$200 billion worth of Chinese goods on May 10. That said, the proposed 5% US tariffs on Mexican goods have been averted for now.

On Friday

On Friday, IHS Markit issues June ‘flash’ manufacturing indexes. Factory activity is contracting in Germany and Japan. The final US gauge fell to 50.5 points in May, the lowest reading since August 2009.

Also, on Friday, US existing home sales figures are issued for May. An increase of 1.4% is forecast by economists.

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Australia: Jobs, consumer and business confidence surveys dominate

Friday, June 07, 2019

After the Queen’s Birthday public holiday on Monday, a raft of business and consumer surveys are released. A post-Federal election bounce is expected, but all eyes will be on the May employment report issued on Thursday.

On Tuesday

The week kicks off on Tuesday when the NAB business survey is released. A rebound in business confidence is expected following the re-election of the Coalition government. The confidence index was just above 5½-year lows at -0.3 points in April due to policy uncertainty. And the employment sub-index fell to a 3½-year low of -1.2 points in April, signalling some weakness in hiring intentions.

On Wednesday

On Wednesday the Roy Morgan-ANZ weekly measure of consumer sentiment is released, followed by Westpac Melbourne Institute’s monthly reading on consumer confidence. The Westpac-Melbourne Institute sentiment index rose by 0.6% to 101.3 in May – near its long-run average. Also, on Wednesday, the Australian Bureau of Statistics (ABS) releases April data on overseas arrivals and departures. Over the year to March, tourist arrivals were down by 0.8 per cent – the weakest annual rate in 7½ years. Departures were up by 1.3% but grew at the slowest annual rate in 13 months.

Both surveys will be keenly observed for consumer reactions to the Federal election result and the Reserve Bank’s (RBA) cut in interest rates. Credit conditions in the property market are expected to improve after major banks reduced mortgage rates and the Australian Prudential Regulatory Authority (APRA) announced an easing in home loan serviceability requirements.

RBA Assistant Governors Luci Ellis and Christopher Kent provide speeches in Melbourne on Wednesday. Dr. Ellis’ speech is titled “Watching the Invisibles” at The Freebairn Lecture in Public Policy. While Dr. Kent speaks at the Australian Renminbi Forum. The Reserve Bank issues the credit and debit card statistics for April also on Wednesday.

On Thursday

On Thursday the employment report for May is issued. Jobs increased for a ninth straight month, up by 28,400 in April. The report, however, may have been distorted by seasonal effects from the extended Easter-Anzac Day holiday period and lead-up to the Federal election with part-time jobs up by 34,700.

But it appears that the primary catalyst for the RBA’s interest rate cut appears to be the tick up in the jobless rate and loss of momentum in leading indicators of hiring intentions. In April, the unemployment rate rose from 5.1% to 5.2% in seasonally adjusted terms. And measures of spare capacity – underutilisation and underemployment - both lifted. Policymakers now believe a lower jobless rate near 4.0-4.5% will stoke inflation. We expect that 15,000 jobs were created with the jobless rate stable at 5.2% in May.

Overseas: US retail spending and China monthly activity data in focus

Chinese economic data releases dominate the overseas calendar over the coming week. Trade, inflation and the May activity data are all scheduled. In the US, inflation, industrial production and retail spending figures will all be keenly observed by investors.

On Monday

The week begins on Monday in China when trade data is released. Both exports and imports are expected to fall by 4% over the year to May as US trade tensions re-escalate and global demand weakens. 

Also, on Monday in the US is data on job openings. The quits rate was steady at 2.3% in March – the equal highest level during the current economic expansion. There were 7.49 million job vacancies in March.

On Tuesday

On Tuesday in the US, data on small business sentiment and business inflation are scheduled. Renewed trade tensions with China could sap confidence from small firms in May. Producer prices are expected to remain muted.

On Wednesday

On Wednesday, the focus switches back to China when inflation data is issued. Headline consumer prices lifted by 2.5% over the year to April on the back of a 14.4% acceleration in pork prices due to the African swine flu epidemic. But producer prices remain sluggish, limiting industrial profit growth.  

Also, on Wednesday, the latest update on US consumer prices and the monthly US budget statement are issued. While a sustained lift in inflation remains elusive, prices could rise in the coming months after tariffs on Chinese imports were increased in May. But US Federal Reserve Chair Powell believes that low inflation is “transitory”.

On Thursday

On Thursday, US trade prices (exports and imports) data is scheduled for May.  

On Friday

On Friday in the US, the all-important retail sales, consumer confidence and industrial production figures are released. Retail spending fell by 0.2% in April. But a 0.7% pick up is forecast by economists in May, supported by a robust job market with unemployment near 50-year lows.  

Also, on Friday in China, the May activity data is scheduled. Key indicators of the Chinese economy, such as credit growth, industrial profits, manufacturing activity and investment growth all weakened before the escalation in US trade tensions. A rebound in consumer spending, however, is forecast by economists with production and investment growth remaining relatively stable in May, supported by continued policy stimulus.

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Australia: Reserve Bank in focus

Friday, May 03, 2019

In the coming week, the Reserve Bank dominates the economic calendar. Top-tier data releases include retail and international trade. Consumer sentiment, job vacancies, inflation and construction data are also issued.  

On Monday

The week kicks off on Monday when ANZ releases job advertisements data for April. Ads have declined for five consecutive months. Vacancies fell by 1.7% in March to be down 6.0% over the year. Also, on Monday the Melbourne Institute issues the monthly inflation gauge. The gauge has lifted by 2.1% over the year to March, above the Consumer Price Index of 1.3%.

On Tuesday

The Reserve Bank Board meets on Tuesday in what is shaping up as the most finely balanced policy get together in years. The annual rate of ‘underlying’ inflation - the Bank’s preferred measure of prices - was the lowest on record at 1.4% in the March quarter, leaving the door ajar for a possible rate cut. But we think that the Board will want to see a “sustained increase in the unemployment rate” before it pulls the trigger. Also, on Tuesday, the Bureau of Statistics (ABS) releases both the retail and international trade data for the month of March. Quarterly retail sales data is also issued. Retail spending rose by 0.8% in February. The annual growth rate stood at 2.9%, just below the three-year average of 3.0%.

Tuesday also saw Australia’s trade surplus rose from $4.35 billion to a record $4.80 billion in February. The annual trade surplus with China hit record highs as did annual exports and imports with China. Roy Morgan-ANZ’s weekly measure of consumer sentiment and AiGroup’s construction gauge round out the data deluge on Tuesday. The construction gauge has contracted for seven successive months with residential home building and dwelling investment both decelerating from their most recent peaks.

On Friday

On Friday, the Reserve Bank releases its Statement of Monetary Policy. All eyes with be on the Board’s economic (GDP) growth and inflation forecasts. Downgrades to the February projections are widely expected. Forecasts for annual GDP growth in 2019 of 3% look optimistic with the IMF recently downgrading its growth forecast to 2.1% – which would be the weakest annual growth rate in a decade, should it materialise. The average of the Reserve Bank’s underlying inflation measures has now been below the Bank’s 2-3% target for 3½ years, pointing to downward consumer price revisions. And projections on the unemployment rate and wages growth will also be keenly observed.

Overseas: Trade and inflation data dominate

In both the US and China, international trade and inflation data are issued. Further US-China trade talks are scheduled in Washington, DC. And a monthly US Federal Budget update is forthcoming from the US Treasury.

On Monday

The week begins on Monday in China when the Caixin services business activity index is released. The gauge rose to its highest level in 14 months in March at 54.4 points. A further expansion of 0.2 points is forecast in April.

On Tuesday

On Tuesday in the US, the regular weekly data on chain store sales is scheduled along with the monthly survey on job openings and labour turnover (JOLTS), IBD/TIPP economic optimism index and consumer credit data.

On Wednesday

On Wednesday in the US, Chinese Vice Premier Liu He is scheduled to lead a delegation to the White House for additional trade discussions. The regular weekly reading on new US mortgage applications is issued. Also, on Wednesday in China, international trade figures for April are due. China's annual export growth rebounded to 14.2% in March, albeit boosted by seasonal distortions. Exports to the US increased by 3.7%. But imports fell by 7.6% in the year to March, led lower by falling oil, copper and steel imports. 

On Thursday

On Thursday data on consumer and producer prices is scheduled in China. Consumer prices accelerated to an annual growth rate of 2.3% in March from 1.5% in February, led higher by rising vegetable and pork prices amid an African swine flu epidemic. But factory deflation still poses a risk, despite rising commodity prices. On Thursday in the US, the usual weekly data on claims for unemployment insurance and the monthly producer prices figures are both issued. Most attention, however, will be on the US international trade balance. The trade gap unexpectedly narrowed to an 8-month low in February of US$49.4 billion due to a lift in commercial aircraft export orders. And the all-important US trade deficit with China narrowed to US$30.1 billion for the month.

On Friday

On Friday, US data on consumer prices, wholesale inventories and the monthly Federal Budget statement are all scheduled for release. Both headline and core consumer prices are projected to grow by 2.1% over the year to April. The US Federal Budget deficit fell from US$233.98 billion in February to US$146.95 billion in March. But a surplus of US$165 billion is tipped by economists in April. The 2018 deficit was the worst in six years.

Financial markets

The US earnings (profit-reporting) season continues in the coming week. Companies expected to report include:

On Monday

Berkshire Hathaway and Tyson Foods.  

On Tuesday

Allergan, Lyft and Marriott.  

On Wednesday

AECOM, Bunge, Chesapeake Energy, Eastman Kodak, Marathon Petroleum and Walt Disney.

On Thursday

Century Casinos, Cheniere Energy, Dropbox, Duke Energy, News Corp, Revlon and Symnatec.

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Have you been feeling pain at the petrol browser?

Wednesday, April 24, 2019

According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 5.5 cents in the past week to 150 cents a litre – the highest level since early November.

What does this mean?

Motorists would’ve experienced some petrol pump pain as they hit the road for the Easter holiday break. Unleaded petrol prices are hovering around 6-month highs. Across capital cities, unleaded petrol prices are currently in a range of $1.44-$1.55 a litre. Just two months ago, prices were around $1.20 a litre. Last week, the average price of unleaded petrol rose in Adelaide, Brisbane and Sydney by between 12.8-16.0 cents a litre. Prices fell in Melbourne, however, by almost 4 cents a litre. But the start of the discounting cycle in Adelaide, Brisbane and Sydney has seen unleaded pump prices begin to fall in recent days. Prices will remain elevated, but the gradual decline in prices towards $1.40 a litre on the East Coast will be welcomed as we support our brave diggers at Anzac Day dawn services around the country on Thursday and the kids return to school.  

The crude oil prices have risen for seven consecutive weeks, supported by continued OPEC-Russian production cuts and supply disruptions in Venezuela, Libya and Sudan, which have pushed up prices by 45 per cent this year. Last week, the Brent crude price rose by 0.6 per cent to US$71.97 a barrel and the US Nymex price rose by almost 0.2% to US$64 a barrel. But the key regional Singapore gasoline price fell by 1.5% to US$81.70 a barrel. Following the Easter holiday break, global crude oil prices lifted to near 6-month highs in overnight trading (Monday) on global supply concerns. The US announced a further clampdown on Iranian oil exports. Furthermore, the Trump Administration said that it will end all waivers from May 2 that previously allowed eight countries (including China and India) to buy Iranian oil without facing US sanctions. In response, the Brent crude oil price rose by US$2.07 or 2.9% to US$74.04 a barrel and the US Nymex price rose by US$1.70 or 2.7% to US$65.70 a barrel. And the key regional Singapore gasoline price rose by 2.3% to US$83.60 a barrel – the highest level since late October. 

What do the figures show?

According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 5.5 cents to 150 cents a litre in the past week – the highest level in 24 weeks. The metropolitan petrol price rose by 7.1 cents to 152.4 cents per litre and the regional price rose by 2.5 cents to 145.3 cents per litre. Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 14.1 cents to 153.2 c/l), Melbourne (down by 3.9 cents to 149.9 c/l), Brisbane (up by 12.8 cents to 157.7 c/l), Adelaide (up by 16 cents to 156.1 c/l), Perth (up by 3.8 cents to 147.7 c/l), Darwin (down by 2.7 cents to 142.0 c/l), Canberra (up by 1.4 cents to 144.3 c/l) and Hobart (up by 3.1 cents to 150.8 c/l). The smoothed gross retail margin for unleaded petrol rose by 1.4 cents to 12.02 cents a litre last week – a two-month high. 

The national average diesel petrol price rose by 0.4 cents a litre to 149.9 cents a litre over the week. The metropolitan price rose by 0.5 cents to 149.2 cents a litre with the regional price up by 0.4 cents to 150.4 cents a litre. Today, the national average wholesale (terminal gate) unleaded petrol price stands at 136.5 cents a litre, up by 1.0 cent over the week. The terminal gate diesel price stands at 138.2 cents a litre, up by 0.3 cents over the past week. Last week, the key Singapore gasoline price fell by US$1.20 or 1.5% to US$81.70 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $2.50 or 2.2% last week to $113.74 a barrel or 71.54 cents a litre. Motor Mouth records the following average retail prices for capital cities today: Sydney 151.4c; Melbourne 145.5c; Brisbane 154.7c; Adelaide 147.7c; Perth 154.9c; Canberra 144.3c; Darwin 144.7c; Hobart 147.7c.

What is the importance of the economic data?

Weekly figures on petrol prices 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 Motor Mouth.

What are the implications for interest rates and investors?

Aussie unleaded petrol prices rose to near 6-month highs last week. Not ideal timing for those heading off on road trips for Anzac Day holidays. Unleaded petrol prices are set to remain between $1.40-$1.50 a litre in the near term. The average terminal gate price for Aussie capital cities has risen by almost 24 cents a litre to $1.36 a litre since the beginning of the year. Gross retail margins are at two-month highs. But there could be some respite from rising oil prices in the second half of this year. US oil production is likely to lift. And Saudi Arabia is expected to increase supply to offset the loss of Iranian crude exports. Russia has already signalled that it may not support continued supply cuts when OPEC meets in June.

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Australia: Budget time again

Friday, March 29, 2019

On Monday

The week kicks off on Monday when CoreLogic releases its estimates of home prices for March. In February, the CoreLogic Home Value Index of national home prices fell by 0.7% to be down 6.3% over the year.  Also, on Monday, NAB issues its March business survey ahead of the Federal Budget. Business confidence fell to three-year lows of 2 points in February. Political uncertainty, challenging retail conditions, drought, falling property prices and slowing domestic demand are weighing on sentiment. The AiGroup and CBA also issue their manufacturing activity gauges. 

On Tuesday

The Bureau of Statistics (ABS) publishes the building approvals data – a key leading indicator for home building. And the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. The Reserve Bank Board meets on Tuesday, but no rate change is expected. Also, on Tuesday, the Federal Budget is handed down at 7.30pm AEDT. The Federal Budget is seen as a once-a-year event. But the reality is the government’s finances can be tracked over time. Furthermore, the government’s finances are better-than-expected. In the twelve months to February 2019, the Budget deficit stood at $953 million (0.05% of GDP) – the smallest rolling annual result in a decade. Over the same 12-month period to February, the fiscal balance was in surplus by $7,445 million with the net operating balance in surplus by $10,219 million.

On Wednesday

The ABS issues continue with the international trade and retail trade data for February. Consumer spending is a key uncertainty for the interest rate outlook. But Australia’s trade position is in good shape with the biggest surplus in two years posted in January ($4,549 million). Also, new vehicle sales data is issued with sales down by 5.2% over the year to February.

On Friday

The AiGroup’s construction gauge is also issued. Residential housing construction activity is slowing.

Overseas: US jobs and retail spending in focus

US reports on jobs and retail sales are the key interest points in the coming week. Manufacturing and services activity gauges in the US and China will also be keenly observed. 

On Monday

The week begins on Monday in the US when retail sales, the Institute of Supply Management (ISM) manufacturing gauge, business inventories and construction spending data are all released. US retail sales are forecast to lift by 0.3% in February after increasing by 0.2% in January. The ISM manufacturing index is tipped to increase by 0.6 points in March after falling to a two-year low of 54.2 points in February.  

On Tuesday

Weekly chain store sales, durable goods orders, the ISM New York Index and vehicle sales data are scheduled. New orders for core capital goods rose by 0.8% in January - the most in six months - and shipments increased. But durable goods orders are forecast to fall by 0.8% in February.

On Wednesday

In the US, weekly mortgage applications, the ISM non-manufacturing business activity index and the ADP employment data are issued. ADP private payrolls are forecast to have lifted by 180,000 in March after a similar 183,000 jobs were added in February. Private sector labour market demand remains solid with broad based gains from construction to professional and business services.

On Thursday

The usual weekly data on claims for unemployment insurance is released with the Challenger job cuts figures. In February, US employers announced the largest number of monthly job cuts (76,835) in more than 3½ years.

On Friday

In the US, the all-important employment report is released for March. Only 20,000 jobs were added in February – the least since September 2017. Winter weather likely reduced payroll growth with construction jobs down by 31,000. But the unemployment rate remained steady near five-decade lows at 3.8%. And average hourly earnings grew by 3.4% over the year to February – the strongest growth rate in a decade. Also, on Friday consumer credit data is scheduled. Credit is forecast to lift by US$15 billion in February after rising by US$17.05 billion in January.

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Jobs and population data in focus

Friday, March 15, 2019

This week kicks off on Tuesday

The week kicks off on Tuesday with a speech on “Bonds and Benchmarks” by Reserve Bank Assistant Governor (Financial Markets) Christopher Kent at the KangaNews DCM Summit in Sydney. And the Reserve Bank’s March 5 monetary policy meeting minutes will be released at 11:30am Sydney time.

On Tuesday we also see a speech on “Bonds and Benchmarks” by Reserve Bank Assistant Governor (Financial Markets) Christopher Kent at the KangaNews DCM Summit in Sydney. And the Reserve Bank’s March 5 monetary policy meeting minutes will be released at 11:30am Sydney time.

The regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And the Bureau of Statistics’ releases its quarterly publication “Residential Property Price Indexes”. Apart from home prices there is other data covering the average value of homes and changes in the number of homes in each state.

On Wednesday

The Commonwealth Bank issues its Business Sales Indicator for February. And the Department of Jobs and Small Business releases the Internet Vacancy Index for February. In January, the index rose by 1.3% to a 6½-year high of 88.2 points. It was the fourth straight gain in the trend index. The index is 3.3% higher than a year ago. 

On Thursday

The February employment report is released. Leading indicators of jobs growth have been mixed and there has been a loss of momentum in private-sector activity. That said, 65,400 full-time jobs were added in January with the NSW unemployment rate falling to 3.9% – the lowest level since the 1970s. CBA economists’ forecast 15,000 jobs to be added with the unemployment rate steady at 5 per cent.

Also, on Thursday the Bureau of Statistics’ releases the September quarter population estimates. Annual population growth probably held near 1.5-1.6% – still one of the fastest rates across advanced nations. 

On Friday

The Commonwealth Bank releases the ‘flash’ Purchasing Manager indexes for March.  

Overseas: The US Federal Reserve takes centre stage

In the absence of any ‘top shelf’ data releases in China, the US Federal Reserve’s interest rate decision is the highlight for investors in the week ahead. 

On Monday

The week begins on Monday in the US when the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index for February is released. According to NAHB Chair Randy Noel, the “Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment. In the aftermath of the fall (autumn) slowdown, many builders are reporting positive expectations for the spring selling season.” The home builder sentiment index is currently at 4-month highs at 62 points.

On Tuesday

The January data on US factory orders is released along with the weekly chain store sales figures. Economists estimate that factory orders fell by 0.1%. New orders for US-made goods rose by just 0.1% in December and business spending on equipment was much weaker than expected, pointing to a softening in manufacturing activity.

On Wednesday

The US Federal Reserve’s Open Market Committee (FOMC) hands down its interest rate decision at the conclusion of its two-day meeting. Chair, Jerome Powell, is expected to reiterate in his press conference the FOMC’s recently stated position that it can be patient when it comes to the future path of monetary policy. With inflation pressures “muted”, the US facing “crosscurrents” from slowing global growth and likely winter-impacted March quarter economic activity, we expect the Federal Reserve to remain sidelined this year.

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Autumn avalanche

Friday, March 01, 2019

The week kicks off on Monday

The Australian Bureau of Statistics (ABS) releases the Business Indicators publication for the December quarter. The data on inventories or stocks is a direct input to Wednesday’s economic growth figures. Furthermore, the ABS also publish the building approvals data – a key leading indicator for home building. And the ANZ issues its job advertisements index for the month of February. 

On Tuesday

The regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And the ABS publish quarterly data on government spending and the Balance of Payments – the broader data on the trade position. Also, on Tuesday the Federal Chamber of Automotive Industries issues the February new vehicle sales figures. And both AiGroup and CommBank publish their respective purchasing manager survey results for the services sector.

On Wednesday

The ABS release the National Accounts – containing the key reading of economic growth in the September quarter. The current annual growth rate of 2.8% is in-line with the 2.75% long-term average. 

On Thursday 

The ABS issue the international trade (data on exports and imports) and retail trade data for January. The AiGroup’s construction gauge is also issued. Residential housing construction activity is slowing.  

On Friday

On Friday the Reserve Bank’s Head of Economic Research, John Simon, delivers a speech in Brisbane.

In the USA

The US employment report, together with Chinese trade and inflation data all feature this week.

Next Monday

In the US when the ISM New York business conditions index and construction spending data are released. Gains in home building have partly offset weakness in non-residential construction.

Tuesday

New home sales, weekly Johnson Redbook chain store sales, ISM non-manufacturing and IBD/TIPP economic optimism data are all scheduled. And the latest monthly US budget statement is also due.

Wednesday

In the US, factory orders and international trade data are scheduled with the weekly gauge of mortgage applications. And the Federal Reserve’s Beige Book and ADP’s private payrolls report are issued.

Thursday

The US goods trade balance for January is issued along with the consumer credit report, quarterly unit labour costs/productivity data and the weekly new claims for unemployment insurance (jobless claims). 

Friday

In the US all eyes will be on the February jobs report. The US economy added jobs for a record breaking 100th consecutive month in January. An additional 170,000 jobs are expected to have been created in February, taking the unemployment rate down from 4% to 3.8% – near 50-year lows.  

The end of reporting season

The Australian corporate reporting season has ended for the major industrial companies. But a host of earnings results, especially from resources companies, are due in the coming week. The reports include: 

Monday: Cullen Resources, Dragon Mountain Gold; Hannans, Retail Food Group; Scout Security; Zinc of Ireland. 

Tuesday: Cap-XX; Carpentaria Resources; Elementos.

Wednesday: ALT Resources; Carnavale Resources; Cassius Mining; GoConnect; MMG; Myer; Red Metal; Santana Minerals; Tungsten Mining.

Thursday: ActivEx; Argent Minerals; GWR Group; Lithium Consolidated; Primero Group; ThinkSmart.

Friday: Alchemy Resources; Bauxite Resources; E3Sixty; Odyssey Energy; Poseidon Nickel; Sovereign Metals.

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What’s on next week?

Friday, February 01, 2019

The week kicks off on Monday

The Australian Bureau of Statistics (ABS) releases its latest building approvals report. Residential approvals fell by 9.1% in November to sit 32.8% lower over the year. Also on Monday, ANZ releases job advertisements data for January. Ads were flat in December, but are still up by 4.1% over the year at 175,428 - just below 7-year highs of 178,879 ads.

Tuesday

The Reserve Bank Board meets for the first time this year, but no change in the official cash rate is expected.  Also on ‘Super Tuesday’, a bevy of economic data is released including weekly consumer confidence, retail and international trade, new vehicle sales and services sector surveys.  There were mixed reports about Christmas and post-Christmas spending especially in light of the impact from Black Friday online and grocery sales in November. But spending is projected to lift by around 0.7% in the December quarter, supporting economic growth.

Wednesday

Reserve Bank Governor Philip Lowe delivers a speech at the National Press Club in Sydney.  The ABS issues its “Selected Cost of Living” indexes for the December quarter, detailing changes over time in the purchasing power of the after-tax incomes of Aussie households.

Friday

The Reserve Bank releases its Statement of Monetary Policy. All eyes with be on the Board’s economic growth and inflation forecasts, given the weakening global economic backdrop, tighter credit conditions, falling home prices and the more uncertain operating environment for businesses. And the Board’s projections for unemployment and wages growth will come into sharper focus with the jobless rate hitting 71⁄2-year lows of 5% in November – a level previously estimated as ‘full employment’.

In the US…

In the absence of major data releases in China, investors will focus their attention on ‘top shelf’ US economic data releases after the re-opening of major US government agencies.

The week begins on Monday

In the US retail sales, factory orders and durable goods orders are all scheduled for release. Large publicly-traded retailers such as Macy’s and Kohl’s provided disappointing sales updates recently. But e-commerce holiday season sales lifted by 16.5% from a year earlier according to Adobe Analytics, signalling that overall retail sales were positive in December. An increase of 0.2%t is forecast.

Also on Monday, housing-related data is issued. Building permits, housing starts and new home sales feature.

On Tuesday

Weekly chain store sales data is issued along with international trade and the ISM non-manufacturing index. The US trade deficit is forecast to fall by US$1.5 billion to US$54 billion in December.

On Wednesday

The delayed advance (flash) reading of US economic growth (GDP) is due. The annual GDP growth rate is forecast to decelerate from 3.4% to 2.6% in the December quarter. And the JOLTS job openings report is issued. The number of unfilled jobs in November fell to the lowest level since June, though openings still exceeded unemployed Americans. Weekly mortgage applications are also due.

On Thursday

The weekly jobless claims data (claims for unemployment insurance), personal income spending and consumer credit data are all scheduled. Most interest will be in the US Federal Reserve’s preferred measure of inflation – the core personal consumption expenditure deflator – which is expected to remain unchanged at an annual growth rate of 1.9% in December – just below the central bank’s 2% target. Also on Thursday, US Federal Reserve Chair Jerome Powell speaks at the "Conversation with the Chairman: a Teacher Town Hall Meeting" event hosted by the Federal Reserve Bank of Richmond, Charlotte branch.

On Friday

Wholesale inventories data for December is scheduled.

Reporting season

The Australian corporate reporting season shifts up a gear with around 40 companies scheduled to report their results during the first week of February. Earnings per share (EPS) growth of 5% is forecast in financial year 2019. Companies reporting next week:

Monday include Galaxy Resources.

Tuesday: Navitas.

Wednesday: Dexus, Shopping Centres Australasia, BWP Trust, Cimic, Commonwealth Bank, Genworth Mortgage Group and Insurance Australia Group.

Thursday: AGL Energy, Downer EDI, Mirvac, Nick Scali and Newscorp.

Friday: REA Group and Paragon Care.

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How are our household finances going?

Friday, December 14, 2018

The wealth data below is important as a guide to future spending. The airfares data provides a guide on inflationary pressures as well as giving an insight into operating conditions for airlines.

Total household wealth (net worth) rose by 0.2% to $10,406.2 billion in the September quarter. Over the year to September, net worth rose by 3.4%. In per capita terms, however, wealth fell from $415,616 in the June quarter to $415,024 in the September quarter. Financial assets added 0.87% to household net worth, but land and dwellings detracted 0.56%. 

Foreigners held a record $613.8 billion of Aussie shares in the September quarter, up from $605.5 billion in the June quarter.

Discount airfares rose by 38.9% in December - the biggest monthly increase in six years - after falling by 3.7% in November. Discount fares are up by 11% over the year. In smoothed terms, discount fares rose 15.6% on a year ago.

What does it all mean?

The Finance & Wealth publication from the Bureau of Statistics contains the most complete figures on household finances. Aussie wealth remains elevated, but continues to ease on the back of falling home prices.

Despite the fall in national home prices over the quarter, losses were more than offset by gains in financial assets, such as Aussie shares, bonds, currencies and cash deposits. Households (and foreigners) have been increasing their allocation of financial assets this year.

On average, each Australian has net assets (assets less liabilities) of over $415,000, a total that has lifted by over $7,600 in the past year. And over the past five years per capita wealth has risen by almost $106,000 or 34%. It is clear that household balance sheets remain solid. 

 Looking ahead, per capita wealth may consolidate closer to $400,000 after significant gains over the past five years should home valuations continue to decelerate. Home prices are likely to fall further – especially in Sydney and Melbourne. And global share markets have become increasingly volatile on investor concerns about slowing global growth, rising US interest rates, tech valuation concerns, trade uncertainty and mounting geo-political risks. 

What do the figures show? 

Total household wealth (net worth) rose by 0.2% to $10,406.2 billion in the September quarter. Over the year to September, net worth rose by 3.4%. In per capita terms, however, wealth fell from $415,616 in the June quarter to $415,024 in the September quarter - below the record high of $416,258 in December 2017. Wealth is still up $7,627 (or 1.9%) over the year.

The ABS noted:Household net worth increased by 0.2% during September quarter 2018, slowing from the 0.6% growth last quarter. Financial assets were the largest contributor to the increase in household net worth, contributing 0.87% to growth. Other non-financial assets was the next largest contributor to growth in household net worth, contributing 0.02%. In contrast, land and dwellings, and liabilities detracted 0.56 and 0.11% from growth, respectively.” 

Households held a record $1,134.6 billion in cash and deposits at the end of September. Cash and deposit holdings represented 21.4% of financial assets, up from 21.2% in the June quarter, but below the 21.9% average since the global financial crisis and long-run average of 21.6%.

Households held a record $989.9 billion in shares (or 18.7%) of all financial assets in the September quarter, up from 18.6% in the June quarter, in-line with the average since the global financial crisis, but below the long-run average of 22.5%.

Pension fund (superannuation fund) assets rose by $40.0 billion to a record-high $2,289.35 billion in the September quarter. Cash and deposits stood at 10.7% of financial assets, below the 13.1% average since the global financial crisis, but above the long-term average of 9.4%.

Foreigners held a record $613.8 billion of Aussie shares in the September quarter, up from $605.5 billion in the June quarter. Foreigners held 31.3% of total listed shares, below the 31.2% average since the global financial crisis and long-term average of 32.9%.  

Airfares

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that discount airfares rose by 38.9% in December - the biggest lift in six years - after falling by 3.7% in November. Discount fares are up by 11% over the year. In smoothed terms, discount fares rose 15.6% on a year ago.

Restricted airfares increased by 2.2% in December after lifting by 0.7% in November. Restricted economy fares are up by 4.5% over the year. In smoothed terms, restricted economy fares increased by 7.3% on a year ago. 

Business airfares fell by 4.6% in December – the largest fall in over four years - after falling by 0.1% in November. Business fares are down by 4.1% over the year. In smoothed terms, business fares fell by 1.5% on a year ago.

What is the importance of the economic data?

The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data, including the Australian Domestic Airline Activity publication monthly and the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and consumers are more confident.

What are the implications for interest rates and investors?

Household consumption remains a key uncertainty for Reserve Bank policymakers. Household income growth remains soft, but appears to have stabilised with wages gradually increasing. In this environment, consumers have been eating into their savings to maintain discretionary spending. 

The downward trend in the savings rate may reverse as households become increasingly risk averse, preferring bank deposits to property investments as home prices fall in some cities. But it is hoped that productivity growth will lift and consumers remain resilient, given still-solid jobs growth.  

More attention will be given to global share markets in 2019. After a stellar run culminating in bourses reaching decade (Australia) and record (US) high levels earlier this year, shares are under pressure. The S&P/ASX200 index is down over 6 per cent so far this year. 

And while the Reserve Bank’s key focus is on currency stability, price stability and “full employment”, Marion Kohler, Head of Domestic Markets Department, said today that the Reserve Bank pays close attention to the equity market in particular because it is a transmission channel for monetary policy. When interest rates go down, share prices tend to increase, and this increases the wealth of households who hold those equities.”

As evidenced by today’s wealth report, the Reserve Bank will be hoping that Aussie shares and bonds will continue do the heavy lifting next year, shielding households from downside risks around the Sydney and Melbourne property markets. Aussie bonds have been a strong performer over the year to November, up by 2.5% (Bloomberg Australian Composite Bond Index 0+ Years). Australia’s AAA sovereign credit rating, stable interest rates and solid fiscal position has made government bonds an attractive destination for risk averse investors.  

CommSec expects the Reserve Bank to leave the official cash rate on hold for the foreseeable future.

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So long, farewell, au revoir, auf wiedersehen…

Friday, December 07, 2018

The year begins to wind down, with consumer and business surveys complemented by housing and wealth data. The Reserve Bank (RBA) releases its quarterly Bulletin and speeches are made by Assistant Governor (Financial Markets) Christopher Kent and Marion Kohler, Head of Domestic Markets Department.

Monday, Monday

The week kicks off when the Australian Bureau of Statistics (ABS) releases data on housing finance. Investor lending continues to decline due to weakening demand for homes (and falling home prices) in Sydney and Melbourne following greater regulatory oversight of bank lending practices. But the value of owner-occupier home lending is forecast to rebound by 3% in October, supported a pick-up in lending to first home buyers. Also on Monday, RBA Assistant Governor (Financial Markets) Christopher Kent speaks about “US Monetary Policy and Australian Financial Conditions” at the Bloomberg event in Sydney.

Tuesday not so good

The ABS releases its publication Residential Property Price Indexes. The data is relatively “old”, focusing on the three-month period to September 30. Apart from home prices there is other data covering the average value of homes and changes in the number of homes in each state. And the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And NAB releases the November business survey. The NAB business conditions index eased from +14 points to +12 points in October. Business confidence fell from +6 points to +4 points. 

Wednesday looking better

Broader lending figures are released. The data on home loans is provided, but together with business, lease and personal loans. Total new lending commitments (housing, personal, commercial and lease finance) rose by 3.6% in September to a 10-month high of $71.8 billion. And Westpac and the Melbourne Institute release the December monthly reading on consumer confidence. The index rose by 2.8% in November. Falling petrol prices should boost sentiment. And the Reserve Bank releases October data on credit and debit card lending. 

Thursday OK

The ABS releases the Finance & Wealth publication, which contains the most complete figures on household finances. Total household wealth (net worth) rose by 1% to $10,357.5 billion at the end of June 2018. In per capita terms, wealth rose from $411,821 to $414,463 in the June quarter. And the Reserve Bank’s Marion Kohler, Head of Domestic Markets Department, speaks at the 31st Australasian Finance and Banking conference, Sydney. The Bank’s quarterly Bulletin is also issued.

Friday on my mind

The CBA releases its November ‘flash’ purchasing manager’s manufacturing and services surveys.

Looking overseas

China releases inflation, retail sales, industrial production, investment and house price data over the week. In the US, inflation, industrial production and retail sales data will be in focus. The data week kicks off on Sunday when China releases its producer and consumer prices data. Business inflation has decelerated for four consecutive months due to weakening domestic demand and trade concerns.  

On Monday in the US, the Labor Department releases its JOLTS survey for October. Job openings edged lower in September to just over 7 million from a record 7.3 million in August.  

The usual weekly data on US chain store sales is released on Tuesday along with producer prices and the National Federation of Independent Business (NFIB) Small Business Optimism index. Producer prices rose by 0.6% in October - the most in six years – as the cost of goods and services lifted. 

On Wednesday in the US, the regular weekly data on mortgage applications is released together with inflation data. Headline consumer prices rose by the most in nine months in October. Increases in the cost of gasoline and rents pointed to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again on December 19. And the US Treasury releases the November update on the government’s fiscal position. The US budget deficit likely widened to US$100 billion in October, up from US$63 billion a year ago.

On Thursday, the weekly data on new claims for unemployment insurance and export/import prices data are issued for November.

On Friday in Chinamonthly retail sales, industrial production and investment data are all scheduled. Investment is expected to continue lifting on the back of government stimulus. Retail sales are also forecast to rebound, supported by tax cut plans.  And in the US, industrial production and retail sales data are issued.

And Markit’s ‘flash’ purchasing managers’ indexes will be released globally. Manufacturing gauges have eased recently.

On Saturday, China house prices are scheduled for release. Annual house prices were up by 8.6% in October.

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