Inflation dominates the domestic calendar
· There are few stand-out economic events scheduled in Australia in the coming week. No doubt inflation indicators will dominate the headlines while the CommSec State of the States report will also garner significant interest. In the US the focus will be on Federal Reserve policy meeting and ‘top shelf’ data on the housing sector.
· In Australia, the week kicks off on Monday when CommSec releases its State of the States report. NSW led the quarterly assessment of economic performance in the July report. The question is whether NSW retained the top spot given the resurgence of the Victorian economy.
· On Wednesday, the Bureau of Statistics (ABS) releases the quarterly inflation data, that is, the Consumer Price Index. In the June quarter the big mover was the price of petrol, which lifted by 14 per cent and dominated the inflation result. However this time around, using our daily national estimates of petrol prices, CommSec has calculated that petrol fell by around 2 per cent in the September quarter, ensuring a much tamer result. Offsetting this to some degree the slide in the Australian dollar is likely to contribute to a modest lift in imported prices.
· Overall the CommBank Group expects that the headline CPI rose by 0.7 per cent in the quarter with annual growth at 1.7 per cent. Stripping out volatile factors like petrol, ‘underlying inflation’ probably lifted 0.6 per cent in the quarter or by 2.5 per cent over the year. In other words inflation remains well within the Reserve Bank’s 2-3 per cent target band.
· In the September quarter, seasonal changes in electricity, gas, water and council rates affected the CPI while health costs likely eased due to the effects of the Pharmaceutical Benefits Scheme. The cost of ‘new dwelling purchase by owner-occupiers’ also likely rose in the quarter reflecting the high demand for home building services.
· On Thursday, data on new home sales for September is issued – a useful indicator from the Housing Industry Association on the state of home building.
· Also on Thursday, the focus stays on price measures with data on export and import prices for the September quarter. The readings tend to be heavily influenced by changes in the Aussie dollar and oil prices. And the export price index is affected by changes in coal and iron ore prices.
· On Friday there are two items of note. The first is the release of data on business inflation – the producer price indexes (PPI). This data was useful in the past when it was released prior to the publication of the Consumer Price Index. Now, the PPI is of less interest – although economists will still dissect the figures to determine if there are some emerging inflationary pressures.
· Also on Friday the Reserve Bank releases the “Financial Aggregates” publication for September. Not only does the publication include figures on outstanding loans in the economy (effectively, private sector credit) but it includes data on the money supply, which last dominated consciousness back in the 1980s.
· We expect that private sector credit data will show a 0.6 per cent increase in September, with annual growth holding at a 61Ž2-year high of 6.3 per cent. Most interest will be in the measures of housing credit, especially investor home loans.
Plenty to monitor on overseas markets
· US data dominates the overseas economic calendar in the coming week with the highlight being the Federal Reserve meeting on Wednesday. And the week kicks off on Monday with data on new home sales while the Dallas Federal Reserve manufacturing survey is released.
· On Tuesday, the Case Shiller measure of home prices will be released with a gauge of consumer confidence and figures on orders of durable (or long-lasting) goods with the latter also serving as a proxy for business investment. Also surveys are released by the Richmond and Dallas Federal Reserve districts.
· On Tuesday and Wednesday, the Federal Reserve policymaking committee – the Federal Reserve Open Market Committee (FOMC) – meets to decide policy settings (decision Thursday 5am AEDT). The FOMC is widely expected to keep interest rates on hold. However the focus will be on the accompanying statement and any wording that may suggest that a rate rise is still on track for December. Overall, there is a clear risk that the tone of the statement could induce more financial market volatility.
· On Thursday the first estimates of economic growth are expected for the September quarter with economists tipping annualised growth rate of 1.7 per cent – a result that gives the Fed more ammunition to justify the low rate environment. Also on Thursday is the release of weekly data on claims for unemployment insurance and pending home sales. And on Friday, data on personal income and spending is issued with the final reading of the consumer sentiment index for October from the University of Michigan.
Sharemarkets, interest rates, commodities & currencies
· In the US, the profit-reporting or earnings season picks up pace in the coming week. A total of 94 companies deliver results on Monday including Garmin, Xerox and Whirlpool.
· On Tuesday, 253 companies report earnings including, Pfizer, Alibaba, Apple, Coach, Merck & Co, Ralph Lauren, Comcast, Simon Property Group, and United Parcel Service,
· On Wednesday, another 279 companies are slated to issue results including, Visa, PayPal, and Starwood Hotels & Resorts,
· Thursday is the busiest day in the reporting calendar with 375 listed companies slated to issue profit results including Coca-Cola, ConocoPhillips, Mastercard, Time Warner, Newmont Mining, and Johnson and Johnson.
· Closing the week on Friday, Exxon Mobil, Iron Mountain, Western Union and Starbucks are amongst the 94 companies scheduled to report.