Craig James, Commsec

Business spending dominates attention

·         In Australia in the coming week, the key survey of business spending – or private sector capital expenditure – is released. In the US, another solid week of economic data releases is scheduled.

·         In Australia, the week kicks off on Tuesday with preliminary estimates of goods and services exports and imports issued for the March quarter. The figures are more for data aficionados as are the supplementary figures on producer prices (business inflation).

·         However the first measure of relevance for economists and investors alike is the construction work done figures from the Bureau of Statistics (ABS) on Wednesday. Certainly the data is more of an historical record, showing residential, commercial and engineering construction activity in the quarter. But the data on residential building is a direct input to the GDP (economic growth) equation. The economic growth data will be released on June 3.

·         Also on Wednesday the Reserve Bank Deputy Governor Philip Lowe delivers yet another speech, this time at Thomson Reuters’ 3rd Australian Regulatory Summit in Sydney. Whenever Reserve Bank officials front the lectern, they have the opportunity of sending messages to the wider community. In a recent speech, Philip Lowe confirmed that the Reserve Bank still had scope to cut interest rates should it become necessary.

·         The highlight over the week is the business spending figures on Thursday.  The Reserve Bank’s fervent wish is that businesses start to embrace the amazing opportunities presented by the low interest rate environment. In fact Reserve Bank Deputy Governor Philip Lowe has highlighted a recent global survey from Deloitte that shows businesses still require that new business investment initiatives achieve returns of above 10 per cent despite the super-low interest rate settings.

·         We expect that business spending fell by around 5 per cent in the March quarter, keeping downward pressure on interest rates.

·         Apart from actual business spending, the other point of interest from the investment survey is the expectations component. Respondents to the survey reveal expectations for spending over the remainder of 2014/15 as well as early expectations for 2015/16. Expected spending of around $154 billion for 2014/15 will be well regarded as would be spending near $115 billion for 2015/16.

·         On Friday the Housing Industry Association issues data on new home sales for April, while the Reserve Bank also releases the Financial Aggregates publication. Not only does the publication contain the data on private sector credit or loans outstanding but also the monetary aggregates. Private sector credit probably grew by 0.4-0.5 per cent in April or around 6.2 per cent over the year. Investment housing probably led growth, but the focus will be on business borrowing.

Bevy of US data releases

·         There are no Chinese economic indicators of note over the week, so the spotlight will clearly be on the US economic data releases.

·         The week kicks off on Tuesday with no fewer than half dozen economic events scheduled. Data on durable goods orders is released – a key measure of business investment. Durable goods are generally regarded as goods that last longer than three years such as aircraft, fridges and computers. Orders may have fallen by 1.2 per cent in April after lifting by 4.7 per cent in March.

·         Also on Tuesday, two data releases on home prices are released with consumer confidence, new home sales, the Richmond Federal Reserve survey and weekly data on chain store sales. Home prices may have risen by 0.8 per cent in March to stand almost 5 per cent higher than a year ago. And new home sales may have rebounded by 7.1 per cent in April after slumping by 11.4 per cent in March.

·         On Wednesday, the “flash” Markit purchasing managers survey for the services sector is released together with both the Dallas and Texas surveys on the services sector and weekly survey of housing finance.

·         On Thursday, data on pending home sales is issued together with the usual weekly figures on claims for unemployment insurance.

·         And on Friday in the US, the preliminary estimates of economic growth are released for the March quarter. The “flash” or advance reading showed the economy growing at a scant 0.2 per cent annual rate. But following weak trade data, economists now expect that the economy went backwards by 0.6 per cent. Clearly the figures will make it more difficult for the Federal Reserve to lift interest rates in coming months.

·         Also out on Friday is the final estimate of consumer sentiment for May together with a speech by the Federal Reserve chair Janet Yellen and the Chicago purchasing manager’s survey.

Sharemarket, interest rates, currencies & commodities

·         Volatility trailed off for the Australian sharemarket last year but it has edged higher in recent months. Using a measure tracking the number of days in the month that the ASX 200 rose or fell by more than 1 per cent, volatility hit 8-year lows over August and September last year.

·         But the rolling annual total of ‘volatile’ days has lifted from 32 days to 43 days on uncertainty about the outlook for the resources sector and about the timing of US interest rate hikes. And the uncertainty looks set to linger a little longer.