Craig James – Chief Economist – CommSec


Data, data, data

·       Every change in season is ushered in by a raft of data releases. So get set for the ‘Autumn Avalanche’. Over the next fortnight over a dozen pieces of economic data will be released together with a meeting of the Reserve Bank Board.

·       In Australia, the week kicks off on Monday with the release of the inflation gauge, data on private sector credit as the Business Indicators publication from the Bureau of Statistics (ABS).

·       There are no standouts from these releases. The inflation gauge is important in determining inflation settings; data on private borrowings is likely to be driven by the business sector; and the Business Indicators includes figures on profits, inventories and sales.

·       On Tuesday, no fewer than five indicators are set for release alongside the Reserve Bank Board meeting to decide interest rate settings. While we can’t totally rule out a rate cut from the Reserve Bank, it is almost certain that they will keep rates on hold and maintain its quasi-easing bias – suggesting rates could fall in coming months. The Reserve Bank Board is likely to highlight the need to assess more data to see how the economy is performing early in the New Year. Financial markets believe there is only a 6 per cent chance of a 25 basis point rate cut at the meeting.

·       In terms of economic statistics on Tuesday, data on building approvals is expected with government finance, the balance of payments, the monthly Performance of Manufacturing index and the CoreLogic RP Data home value index. The figures on government finance and the exports & imports figures will give some sense of how fast the economy grew in the December quarter. However the focus is likely to be on the home price data given the recent discussion on capital gains tax reform and recent consolidation in the sector.

·       The economic growth figures for the quarter are actually released the next day – on Wednesday. In the September quarter growth lifted by 0.9 per cent to be up 2.5 per cent over the year. ‘Normal’ economic growth is closer to 3 per cent and the ‘speed limit’ for growth – the speed that the economy could grow without generating inflation – is probably closer to 4 per cent. So a soft economic growth outcome will keep the Reserve Bank on an implicit easing bias. The February data on new car sales will also be released on Wednesday.

·       On Thursday the ABS releases data on international trade. Also the Housing Industry Association will release figure on new home sales alongside the performance of services index. On Friday retail trade figures will garner plenty of interest given the slowdown in retail activity in December.

US employment under the spotlight

·       There is plenty of data to watch in the US, however the “star” of the US monthly economic data calendar is the non-farm payrolls (employment) figures. And those jobs figures are released in the coming week on Friday.

·       Economists expect that the good run of results continued in February with 195,000 jobs created. Apart from the jobless rate, the other indicator in the report that will be scrutinised will be the measure of wages. If wages are starting to lift, the Federal Reserve will feel more comfortable continuing the process of “normalising” interest rates.

·       In terms of the other indicators, the procession starts on Monday with data on pending home sales and the Chicago Purchasing Manager index slated for release alongside the influential regional Dallas Fed manufacturing index.

·       Also keep an eye out on Monday for the Chinese manufacturing data. Both measures – the National Bureau of Statistics and Caixin gauges measure activity in manufacturing sector. The service sector data is slated for release on Wednesday.

·       On Tuesday, data on new auto sales (cars and trucks) are released together with construction spending  figures and the usual weekly data on chain store sales and the ISM manufacturing survey. In politics, ‘Super Tuesday’ will see voting for Presidential candidates in 12 states and one territory.

·       On Wednesday, the ISM New York survey is released together with the Federal Reserve Beige Book. The Beige Book is the usual ‘qualitative’ survey of economic conditions released ahead of Federal Reserve interest rate decisions.

·       Also on Wednesday the February figures on private sector employment from ADP. Economists tip an 185,000 rise in private sector jobs.

·       On Thursday, data on factory orders is issued together with the usual weekly data on claims for unemployment insurance, Challenger job lay-offs, the ISM services survey for February and productivity/labour costs data.

·       And on Friday, the February data on employment is released – the non-farm payrolls data. As stated earlier economists expect that a 198,000 new jobs created in February. While the unemployment rate may have held steady at 4.9 per cent. Also on Friday the international trade data (exports and imports) is released with consumer credit (lending figures).

Sharemarket, interest rates, currencies & commodities

·       In the coming week, the profit-reporting or earnings season is transformed into the ‘economic reporting season’. And clearly the raft of figures will be important in dictating direction for interest rate and currency markets. At present financial markets have fully priced in another rate cut to occur within seven months.

·       No one can claim it with any certainty – but the oil price does seem to be gyrating around US$30 a barrel. Whether oil holds at these levels is important not just for the energy stocks but also for the financial sector.

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