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Ryan Felsman
Economy Expert
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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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All quiet on the Aussie front

Friday, November 23, 2018

On Monday

The week kicks off in Australia when Reserve Bank Governor Philip Lowe speaks at the Australian Payment Summit in Sydney at 9.15am AEDT. Another Reserve Bank speech follows in Sydney with Assistant Governor (Financial Markets) Christopher Kent scheduled to talk at the Australian Securitisation Forum 2018 Conference at 2.00pm AEDT. 

On Tuesday

The regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. 

On Wednesday 

The Bureau of Statistics (ABS) releases the Construction Work Done figures for the September quarter. The estimates on residential building is incorporated in the dwelling investment component of the quarter’s economic growth data. 

Construction work done rose by 1.6% in the June quarter – the sixth increase in seven quarters – but was down by 0.1% on a year ago. Strong population growth and government spending have supported a large pipeline of building activity. Construction work done in NSW and Victoria were at record highs in the June quarter. And new home building rebounded during the quarter.

Engineering project activity continues to be supported by an extensive pipeline of national public-transport related infrastructure investment through to 2025. That said, the Australian Industry Group’s Performance of Construction Index – a leading indicator – has contracted for two consecutive months (to October 2018) after 19 months of growth, signalling a loss of momentum in construction activity. 

On Thursday 

The ABS releases the Private Capital Expenditure publication (business investment figures) for the September quarter. New business investment (spending on buildings and equipment) fell by 2.5% in the June quarter to be up 0.4% over the year. Also the third estimate of investment in 2018/19 was $101.997 billion and was 1.1% lower than the third estimate for 2017/18. The 16.1% lift in expectations for 2018/19 was the second biggest increase for a June quarter in seven years – above the decade average of 124%. 

On Friday

The Reserve Bank issues the Financial Aggregates publication, a report that includes the private sector credit measure (effectively ‘loans outstanding’) for October. Tighter lending conditions have reduced home price and credit growth. Investor housing finance rose 0.1% in September with annual growth at the slowest rate on record of 1.4%, potentially reducing the risk of speculative investment lending. 

And beyond Aussie shores…

In the US the release of the minutes from the last Federal Reserve meeting will attract interest, while the second estimate of September quarter US economic growth dominates the data docket. Monthly activity gauges from the National Bureau of Statistics of China round out the month. 

On Monday

The week kicks off in the US when the Chicago Federal Reserve National Activity Index is issued. And another influential manufacturing gauge from the Federal Reserve Bank of Dallas is also released. 

On Wednesday

In the US, the second estimate of economic growth for the September quarter is released. Annual GDP growth is expected to lift to 3.6% from the ‘advance’ estimate of 3.5%. 

And weekly MBA mortgage applications, the October trade in goods data and monthly new home sales figures are issued. The purchase of new single-family homes fell by 5.5% to an annual rate of 553,000 units in September as rising mortgage rates, supply shortages and a lack of affordability crimped buyer demand. But demand is forecast to rebound by 5.3% in October following Hurricane-related disruptions. 

On Thursday

In the US, the October data on personal income and spending are released, together with weekly data on new claims for unemployment insurance. But inflation measures – especially the core personal consumption deflator (excluding food and energy prices) – will be a key focus for investors. The core PCE deflator is expected to remain steady at its 2% annual target for a sixth successive month in October. 

And the Federal Reserve releases minutes of the last policy-setting meeting held over November 7-8. Analysts will be looking for anything that confirms views that a rate hike will be delivered next meeting. 

On Friday

In the US, the Chicago purchasing managers’ index for November and pending home sales data are released. And Chinese official factory and services gauges are released, rounding out the month of November. 

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Weekly round up!

Friday, November 16, 2018

The Reserve Bank Board’s November monetary policy meeting minutes and a speech by Governor Philip Lowe at the CEDA annual dinner are the highlights next week. Data releases are mostly second tier: tourism, skilled internet job vacancies and the CBA’s ‘flash’ manufacturing and services’ gauges feature.

The week kicks off when CommSec releases the Home Size Trends Report. Changes in the size of homes has implications for builders, developers and retailers of home appliances. If bigger homes are built, this may result in fewer homes that are needed to be constructed to absorb increases in population. And the Bureau of Statistics (ABS) releases the September overseas arrivals and departures data. The weaker Aussie dollar is supportive of overseas tourism demand. Over the year to August a record 1,435,700 tourists came to Australia from China, up by 7.7%

On Tuesday

The regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And the Commonwealth Bank’s Business Sales Indicator for October is issued. Sales have lifted for 19 successive months. The Reserve Bank Governor Philip Lowe speaks about “Trust and Prosperity” at the CEDA Annual Dinner in Melbourne at 7.20pm AEDT.

And the ABS releases the “National Accounts: Distribution of household income, consumption and wealth (2003/04-2017/18)” publication. Supplementary data on household income and wealth, access to goods and services, population, housing, government benefits and taxation will be of particular interest, given the impact on overall living standards.

On Wednesday,

The Department of Jobs and Small Business issues its monthly skilled internet job vacancies data. The Internet Vacancy Index fell by 0.6% in September, but is still 1.6% higher than a year ago. Job vacancies are at 6½-year highs in Tasmania, up by 16 % from a year ago. 

On Thursday

The ABS releases its population projections for states, territories, capital cities and state regions. According to the ABS, “the projections are not predictions or forecasts, but are illustrations of the growth and change in population which would occur if certain assumptions about future levels of fertility, mortality, internal migration and overseas migration were to prevail over the projection period. 

On Friday

The CBA releases the ‘flash’ manufacturing and services purchasing managers’ indexes for November. Business activity rose at the slowest pace in the survey’s short history in October.

In Trump land

In a holiday-shortened week in the US, a raft of housing-related data are issued. Durable goods orders feature with the ‘flash’ purchasing managers’ manufacturing indexes from developed economies, such as the US, Japan, UK and Eurozone.

The week kicks off in the US, with the release of the National Association of Home Builders (NAHB) Housing Market Index. The index has held steady at around 70 points since June. NAHB Chief Economist Robert Dietz has said, "Favourable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases."

On Tuesday

The usual weekly data on US chain store sales is released, along with October monthly housing starts and building permits figures. Housing starts fell by a greater-than-expected 5.3% in September as construction activity in the South fell by the most in nearly three years (down 13.7%) due to Hurricane Florence disruptions. But starts are forecast by economists to rebound by 1.6% in October. US building permits fell by 0.6% in September – the second straight monthly decline – as permits for the construction of multi-family homes declined by 7.6% to 390,000 units. Permits are tipped to fall by 0.8% to 1.26 million units in October. 

On Wednesday

In the US, the October consumer durable goods data will be issued. In September, the data was volatile, distorted by a 120% surge in orders of defence aircraft. Business equipment investment rebounded in the September quarter, but economists don’t expect this to be sustained with a 2.5% decline in orders tipped in the preliminary read for October.

And weekly MBA mortgage applications and monthly existing home sales data are issued. Sales of previously-owned homes fell to the weakest level (5.29 million) in almost three years in September – the sixth straight monthly decline. US mortgage rates have lifted to the highest level in almost eight years. And the Conference Board’s Leading Index for October is also scheduled. The index, which takes into account building permits, the ISM index of new orders and share market prices, has lifted for 12 consecutive months. 

On Thursday

US markets are closed for the Thanksgiving Day public holiday.

On Friday

Markit’s ‘flash’ manufacturing purchasing managers’ indexes are issued for November across developed economies.

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Down, down, petrol prices down

Tuesday, November 13, 2018

According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 6.7 cents a litre last week to 149.4 cents a litre – the biggest weekly fall since the week ended 30 November 2008 (down 7 cents a litre).

What does this mean?

It was only two weeks ago that petrol prices were at decade-high levels. But unleaded prices have fallen by 11.1 cents a litre over the past fortnight. And last week the national average petrol price fell by 6.7 cents a litre. Pump prices in Adelaide (down 19.2 cents a litre), Brisbane (down 9.6 cents a litre), Sydney (down 9 cents a litre) and Melbourne (down 8.8 cents a litre) all plunged. But prices still remain around the “new normal” price of $1.50 a litre on average across Australia. 

Will prices keep falling? 

The regional Singapore benchmark gasoline price has fallen by 21 cents a litre from recent highs and Australia’s wholesale petrol price has fallen by 15 cents, implying a further fall of around 5-7 cents a litre over the next fortnight, subject to the vagaries of the retail petrol price discounting cycle. The average motorist may now end up paying around $18 less to fill a 70 litre tank compared with the beginning of October.

Why have prices fallen?

The catalyst for falling petrol prices has been the near 20% decline in Brent crude and USNymex oil prices after reaching 4-year highs in early October. In fact, the Nymex price has fallen for 10 successive days – the longest stretch of declines since July 1984.

Last week, the price of Brent crude oil fell by 3.6% to US$70.18 a barrel and the Nymex price declined by 4.7% to US$60.19 a barrel. With the US, Russia and Saudi Arabia pumping near record-high crude at 33 million barrels per day, supply has outpaced demand. And Iranian supply constraints will be less-than-expected with the US granting waivers to several countries.

What are the implications for investors?

The weakening in fuel prices is timely. It also coincides with a sharp fall in electricity prices in Sydney, Brisbane and Adelaide, in particular, over the year to September. Combined with declining childcare prices, Aussie consumers may have a bit more spare change to put to work at shopping centres for the upcoming Christmas trading season. That said, concerns about falling home prices may act as a deterrent.

It was only a few weeks ago that some oil market analysts were forecasting a return to US$100 a barrel crude oil prices, but investor sentiment has turned sharply. The volatility in prices serves to highlight that motorists remain captive to OPEC producers. With prices plunging, OPEC has announced over the weekend that they may cut oil supply in 2019. In fact, Saudi Arabia has already said that it will export 500,000 fewer barrels a day in December than November with Iranian waivers coming into effect. But Russia appears unconvinced, with Energy Minister Alexander Novak reported as saying “it’s hard to say” whether oil markets will be oversupplied next year.  

While OPEC’s meeting in Vienna next month will be closely observed by oil analysts, the vagaries of the retail unleaded petrol price discounting continues. Pump prices may lift from cyclical lows next week as the discounting cycle comes to an end in Sydney, Brisbane and Adelaide. 

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Good morning, Australia!

Monday, October 22, 2018

Howd’y USA

In US economic data, existing home sales fell by 3.4% to a 5.15 million annual pace in September (forecast 5.3m). US share markets ended mixed on Friday. Shares in Procter & Gamble soared by 8.8% in response to strong quarterly sales figures, buoying the Dow Jones index. But investors remained concerned about the Sino-US trade dispute and US-Saudi Arabia tensions. The Dow Jones rose by almost 65 points (or 0.3%), after holding in a 259 point range. The S&P500 index was flat and the Nasdaq index lost 36 points (or 0.5%). Over the week, the Dow was up 0.4% with the S&P 500 flat but the Nasdaq lost 0.6%.    

US long-term treasuries fell on Friday (yields higher). Traders trimmed safe-haven trades on hopes for a resolution of the Italian budget dispute. US 2-year yields rose 2 points to 2.91% and US 10-year yields rose by 1 point to 3.20%. Over the week, US 2-year yields rose by 5 points and US 10-year yields rose by 3 points.

Major currencies were mixed against the US dollar in US and European trade compared with the Asian close. The Euro rose from lows near US$1.1435 to highs around US$1.1525 and was near US$1.1515 in late US trade. The Aussie dollar rose from near US71.05 cents to US71.50 cents and was near US71.20 cents in late US trade. The Japanese yen held between 112.32 yen per US dollar to JPY112.61 and was near JPY112.54 in late US trade.   

Zao shang hao, Asia

In Chinese data on Friday, figures showed the economy grew at a 6.5% annual pace in the September quarter (forecast 6.6%). 

Bongiorno, Europe!

European share markets generally ended modestly lower on Friday. The construction and materials sector fell 1.7% and autos fell 2.7%. The on-going focus was on the size of the Italian budget deficit. The pan-European STOXX600 index fell by 0.1% on Friday but rose 0.7% over the week. The German Dax index lost 0.3% but the UK FTSE index rose by 0.2%. In London trade, shares of Rio Tinto fell by 1.5% and BHP fell by 0.7%.

Top of the morning, London!

Base metal prices were mixed on the London Metals Exchange on Friday. Aluminium, lead and zinc fell by up to 2%. But other metals rose up to 1.1%. Over the week metals fell by up to 4.5% with lead down the most. But zinc was flat and tin rose 0.4%. 

G’day Australia –  on fuel and the glittery ‘stuff’

Global oil prices rose modestly on Friday. Investors were encouraged by data showing that refinery throughput in China rose in September to a record 12.49 million barrels per day. Also Reuters cited sources that said an OPEC and non-OPEC monitoring committee found that oil producers' compliance with a supply-reduction agreement fell to 111% in September, from 129% in August. Brent crude rose by US49 cents or 0.6% to US$79.78 a barrel and the US Nymex price rose by US47 cents or 0.7% to US$69.12 a barrel. Over the week, Brent fell by US65 cents or 0.8% and Nymex fell by US$2.22 or 3.1%.  

The gold futures price fell by US$1.00 an ounce or 0.1% to $1,229.10 an ounce. The spot gold price was trading near US$1,226 an ounce in late US trade. Over the week gold rose by US$7.10 or 0.6%. Iron ore fell by US85 cents or 1.1% to US$73.45 a tonne. Over the week, iron ore rose by US$1.95 or 2.7%.

Have a great day, Australia!

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All quiet on the data front

Friday, October 19, 2018

Deputy Governor Guy Debelle hits the speaking circuit for a second successive week. And a bevy of Reserve Bank officials partake in panel discussions at the Sibos Conference in Sydney.

Monday, Monday

The week kicks off in Australia when the Commonwealth Bank releases the latest Business Sales Indicator – a measure of economy-wide spending. Recent data has indicated firm but moderating growth in sales and Deputy Governor at the Reserve Bank, Guy Debelle, delivers a speech at the Walkley Business Journalism Awards in Sydney.

On Tuesday 

The regular weekly reading on consumer confidence is published by ANZ and Roy Morgan and the Deputy Governor at the Reserve Bank, Guy Debelle, delivers a speech to the 2018 ISDA Annual Australia Conference in Sydney.

On Tuesday & Wednesday

The Reserve Bank panellists participating at the Sibos 2018 Conference in Sydney include: Lindsay Boulton (Assistant Governor, Business Services), Michele Bullock (Assistant Governor, Financial System), Guy Debelle (Deputy Governor), Greg Johnston (Head of Payments Settlements) and Tony Richards (Head of Payments Policy).

And also on Wednesday, the Department of Jobs and Small Business releases its monthly Internet Vacancy report. Skilled job vacancies rose by 0.6% in August – the strongest growth rate in six months. The index is 4.5% higher than a year ago – still near six-year highs.

Overseas: US economic growth takes centre stage

In the US in the coming week the focus will be on the September quarter economic growth or gross domestic product (GDP) report. And a raft of business and consumer confidence surveys are due together with housing data and durable goods orders while the US Federal Reserve Beige Book is released.

On Monday

In the US, the Chicago Federal Reserve National Activity Index is issued. 

On Tuesday

And another influential manufacturing gauge from the Federal Reserve Bank of Richmond is released. And the regular weekly chain store sales figures are published in the US.

On Wednesday

The Markit “flash” purchasing manager index (PMI) survey estimates are issued for the US, France, Germany, the Eurozone and Japan. And the US Federal Reserve’s Beige Book is released together with the weekly data on new mortgage applications. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from bank and branch directors and interviews with key business contacts, economists, market experts and other sources. The report is published eight times a year.

Also, the Federal Housing Finance Agency (FHFA) home price index is tipped to increase by a further 0.3% in August from the previous month. Over the year, prices are up by 6.4%. But new home sales are forecast by economists to fall by 0.2 per cent in September as 30-year fixed mortgage rates lifted to 5.05% last week, the highest level since February 2011.

On Thursday        

The data deluge continues in the US. Pending home sales, weekly new claims for unemployment insurance, the ‘advance’ September data on trade in goods, durable goods orders, wholesale inventories and the Kansas Federal Reserve Manufacturing Index are all issued.

On Friday

In the US the ‘advance’ GDP report for the September quarter is released. Annual GDP growth is expected to decelerate to 3.3 per cent from four-year highs of 4.2%. And the University of Michigan’s final reading on consumer confidence for October is expected to lift by 0.5 to 99.5 points. 

And on Saturday

Chinese industrial profits data are scheduled.

Financial markets

While the majority of US S&P 500 companies will report earnings results for the September quarter over the next few weeks, around 5% of the companies in the index (around 24 companies) have already reported. Interestingly, the majority has cited US dollar strength as the most negative influence on profits, ahead of rising input costs from tariffs and wages pressures.

Companies expected to report earnings this week include:

On Monday: Halliburton, Kimberly-Clark and Moelis.

On Tuesday: Allegheny Technologies, Biogen, Caterpillar, Harley-Davidson, Lockheed Martin, McDonald’s, Wynn Resorts.

On Wednesday: Advanced Micro Devices, AllianceBernstein, AT&T, Boeing, Ford, Freeport-McMoran, Hilton, Legg Mason, Microsoft, Nasdaq, Packing Corp., UPS, Visa and Whirlpool.

On Thursday: Alphabet, Amazon, American Airlines, Baker Hughes, Dow Chemical, Intel, Merck, Snap and Xerox.

On Friday: Alliance Media, Colgate-Palmolive, Goodyear, NextGen Healthcare, Moody’s, Philips 66 and Weyerhaeuser.

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Good morning, Australia!

Monday, October 15, 2018

Howd’y, America!

In US economic data, export prices were flat in September (forecast +0.2%) with import prices up 0.5% (forecast +0.2%). Consumer confidence fell from 100.1 to 99 in October (forecast 100.4). The 5-year outlook for inflation eased from 2.5% to 2.3% — tying with the lowest observation on record.

US share markets rose on Friday by over 1%. Technology stocks led the gains with both Apple and Microsoft lifting by over 3.5%. In response to earnings results JPMorgan Chase fell by 1.1%, Citigroup rose by 2.1% and Wells Fargo rose by 1.3%.  The Dow Jones rose by 287 points or 1.2% after holding in a 467-point range. The S&P500 index lifted by 1.4% and the Nasdaq index gained 168 points or 2.3%. Over the week, the Dow lost 4.2% with the S&P 500 down 4.1% and the Nasdaq lost 3.7%.

US long-term treasuries fell modestly on Friday (yields higher). Equities recovered and investors trimmed some exposure to safe-haven assets like government bonds and gold. US 2-year yields were steady near 2.86% and US 10-year yields rose by 1 point to 3.167%. Over the week US 2-year yields fell by 2.5 points and US 10-year yields fell by 4 points.

Major currencies were mixed against the US dollar in US and European trade compared with the Asian close. The Euro fell from highs near US$1.1610 to lows around US$1.1535 and was near US$1.1560 in late US trade. The Aussie dollar fell from highs near US71.35 cents to lows near US71.00 cents and was near US71.20 cents in late US trade. The Japanese yen rose from 112.48 yen per US dollar to JPY111.88 and was near JPY112.20 in late US trade.  

Bonjour, Europe

European share markets ended modestly lower on Friday. But autos and technology both rose by 0.5% The pan-European STOXX600 index fell by 0.2% on Friday and lost 4.8% over the week. The German Dax index lost 0.1% and the UK FTSE index fell by 0.2%.  

Zao shang hao, Asia

On Sunday, China's central bank governor Yi Gang said he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio.

Top of the morning, London

In London trade, shares of Rio Tinto rose by 1.3% and BHP lifted 0.8%.

Base metal prices were generally firmer on the London Metals Exchange on Friday. Lead rose by 2.7% and zinc rose by 1.6%. But tin lost 1.6% and nickel lost 0.2%. Over the week all metals rose except aluminium (-4.4%). Lead rose by 4.6%.

G’day Australia –  on fuel and the glittery ‘stuff’

Global oil prices rose modestly on Friday. The International Energy Agency said that the market looked "adequately supplied for now" and trimmed forecasts for global oil demand. Brent crude rose by US17 cents or 0.2% to US$80.43 a barrel and the US Nymex price rose by US37 cents or 0.5% to US$71.34 a barrel. Over the week Brent fell by US$2.29 or 2.8% and Nymex fell by US$1.91 or 2.6%. 

The gold futures price fell by US$5.60 an ounce or 0.5% to $1,222.00 an ounce. The spot gold price was trading near US$1,217 an ounce in late US trade. Over the week gold rose by US$16.40 or 1.4%. Iron ore rose by US45 cents or 0.6% to US$71.50 a tonne. 

Over the week iron ore rose by US$1.90 or 2.7%.

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What’s going on next week?

Friday, October 12, 2018

Ruby Tuesday

The week kicks-off when the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan and lending finance data is issued the same day by the  Australian Bureau of Statistics (ABS). Total new lending commitments (housing, personal, commercial and lease finance) rose by 0.1% in July to $70.5 billion. But commitments are down by 0.1% on the year. And the minutes of the last Reserve Bank Board meeting will be released. The Board’s neutral policy stance remains intact, with the record period of interest rate stability expected to extend for the foreseeable future. Commentary on the housing market, business investment and wages growth will be keenly observed.

Waiting for Wednesday

Overseas arrivals and departures data is issued by the ABS. Over the year to July, a record 1,433,300 tourists came to Australia from China, up by 9.4% on a year earlier. And a record 339,200 Indian tourists travelled to Australia, up by 19.5%. And the Deputy Governor at the Reserve Bank, Guy Debelle, delivers a speech to the 2018 Citi Conference in Sydney.

Sweet Thursday

The September job market figures are released by the ABS. CBA Group economists forecast jobs growth of 30,000 in September. The unemployment rate is tipped to remain steady at 6-year lows of 5.3% with the workforce participation rate also unchanged at 65.7%.

Looking overseas…

In the US next week, the focus will be on the US Federal Reserve meeting minutes, retail sales, industrial production and housing market data. Meanwhile, the much-anticipated economic growth (GDP) report together with inflation and economic activity indicators headline the ‘top-shelf’ data releases in China.

On Monday in the US, retail sales, business inventories and the New York Empire State Manufacturing Index are released. Economists tip a solid 0.5% lift in retail sales in September.

On Tuesday, Chinese inflation data is scheduled. Adverse weather conditions and pig disease pushed up fresh food prices in August. Annual consumer prices are expected to lift from 2.3% to 2.5% in September. And US data on industrial production, the JOLTS survey of job openings, National Association of Home Builders (NAHB) survey, capital flows and the regular weekly chain store sales figures are all issued.

On Wednesday, the US Federal Reserve’s Open Market Committee (FOMC) releases minutes from its 25-26 September meeting. The FOMC raised the target range for the federal funds rate by 0.25% to 2-2.25%. And data on building permits, housing starts and the regular weekly mortgage applications are released.

On Thursday, in the US the influential Philadelphia Federal Reserve manufacturing gauge, weekly claims for unemployment insurance and the US Conference Board leading economic index are all scheduled.

On Friday, existing home sales round-out a busy data docket in the US. Following four successive months of declines, sales of previously-owned homes were unchanged in August as buyers continued to grapple with rising home prices and tight inventories. Sales are expected to have fallen by 0.3% in September. Similarly it’s a big day for data releases in China on Friday. Retail sales and production data are issued, together with investment figures. But the most anticipated data release is the September quarter economic growth (GDP) data. Annual GDP growth is expected to moderate to 6.6%, down from 6.7%.

And on Saturday, Chinese house prices are scheduled for release. Annual growth of house prices lifted to a 1-year high in August.

US companies reporting

The US earnings (profit-reporting) season moves up a gear in the coming week. According to FactSet, S&P500 company earnings are estimated to have grown by 19.2% in the September quarter. Amongst the companies expected to report earnings:

Monday: Bank of America, Biomerica and Charles Schwab.

Tuesday: BlackRock, Domino’s, IBM, Johnson & Johnson, Goldman Sachs, Morgan Stanley, Netflix and UnitedHealth.

Wednesday: Abbott Laboratories, Alcoa, Kaiser Aluminium, Kinder Morgan, Northern Trust, Steel Dynamics and US Bancorp.

Thursday: American Express, Bank of New York Mellon, Delta Airlines, E*Trade, eBay, Nucor, PayPal, Philip Morris, Snap-on and Travelers. 

Friday: Honeywell, Manpower, Procter & Gamble, Schlumberger, State Street and USA Technologies.

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Heavy, heavy fuel

Tuesday, October 09, 2018

According to the Australian Institute of Petroleum (AIP), the national average retail diesel petrol price rose by 1.6 cents to 160.4 cents a litre over the week – the highest level in four years. The national average Australian price of unleaded petrol fell by 1.2 cents to 155.8 cents a litre – the second highest level in four years – according to the AIP. The petrol figures have implications for retailers, especially petrol marketing groups. 

What does this mean?

Parts of rural Australia may have received some much-needed rain last week, but the cost of doing business on the land continues to increase. Already under pressure from the drought, diesel prices – one of the biggest input costs for farmers – have hit four-year highs.

Unleaded petrol prices are just below last week’s four-year high, but are still at the second highest level since July 2014. Pump prices are hovering around $1.60 a litre across the country. And there is unlikely to be any near-term respite for motorists returning home from the school  holidays. The weaker Aussie dollar is increasing the cost of imported crude oil (purchased in US dollars), with the benchmark Singapore gasoline price also at fresh four-year highs. Household budgets are continuing to be stretched. 

What prices are being paid state by state?

The metropolitan petrol price fell by 2.2 cents to 155.3 cents per litre, but the regional price rose by 0.7 cents to 156.9 cents per litre. The gross retail margin rose by 0.4 cents to 12.00 cents a litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 7.0 cents to 154.1 c/l), Melbourne (down by 4.4 cents to 158.7 c/l), Brisbane (down by 2.7 cents to 149.3 c/l), Adelaide (up by 11.8 cents to 158.3 c/l), Perth (up by 1.8 cents to 155.1 c/l), Darwin (up by 1.3 cents at 158.4 c/l), Canberra (up by 2.5 cents to 162.8 c/l) and Hobart (up by 1.4 cents to 162.1 c/l).

Yesterday, the national average wholesale (terminal gate) unleaded petrol price stood at 145.8 cents a litre, up by 2.8 cents over the week to 4-year highs. The terminal gate diesel price stands at 151.3 cents a litre - a 4½-year high - up by 4.3 cents over the past week.

The national average diesel petrol price rose by 1.6 cents to 160.4 cents a litre over the week. The metropolitan price rose by 1.4 cents to 160.8 cents a litre with the regional price up by 1.7 cents to 160.1 cents a litre.

Last week, the key Singapore gasoline price rose by US$1.95 or 2.1% to near 4-year highs of US$93.50 a barrel. In Australian dollar terms, the Singapore gasoline price rose by $5.58 or 4.4 per cent last week to a 4-year high of $132.34 a barrel or 83.23 cents a litre.

What’s ahead?

Brent crude oil surged to four-year highs of US$86 a barrel in London trading last week, but has eased a little in recent days. Over the weekend, Saudi Arabia’s Crown Prince Mohammed bin Salman, pledged to increase production by around 1.3 million a day to offset expected declines in Iranian crude exports due to looming US sanctions.

It is hoped that a lift in OPEC and Russian crude output will eventually rebalance the oil market, placing downward pressure on oil prices. However, this is of little comfort to Aussie households paying around $1.60 per litre at the pump for both unleaded petrol and diesel prices – about the most in four years. The impact of rising petrol prices on headline consumer prices will be something to look out for later this month when the Bureau of Statistics releases its inflation data for the September quarter. 

And as an aside, CommSec expects interest rates to remain unchanged until late 2019.

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