Craig James – Chief Economist – CommSec


Quiet holiday shortened week ahead in Australia

·       After a busy fortnight, the so-called ‘top shelf’ economic indicators will be virtually non-existent in Australia in a holiday shortened week (Good Friday holiday). The highlights are the latest population and wealth figures to be released on Thursday, while a speech by Reserve Bank Governor Stevens will be closely scrutinised by investors on Tuesday.

·       In Australia, the week kicks off on Monday with the latest CBA Business Sales indicator. This measure uses data on credit and debit card transactions to gauge changes in economy-wide spending. In line with retail sales, trend growth in economy-wide sales has remained healthy to date.

·       On Tuesday, ANZ and Roy Morgan issue the weekly consumer sentiment reading, while the Australian Bureau of Statistics (ABS) will release residential property prices. In terms of consumer sentiment, households are in a happy place. Lower interest rates, cheap petrol prices and improved job security are all freeing up a few more spending dollars. It is clear that household budgets are looking more attractive than in the past – a result that should support activity across the economy.

·       Also On Tuesday, Malcolm Edey, Assistant Governor (Financial System) at the Reserve Bank participates in a panel discussion at the ASIC Annual Forum (11:45am AEDT). In addition the Reserve Bank Governor Glenn Stevens is set to deliver a speech at the forum (4:30pm, AEDT). Investors will be interested in any views the policymakers have on the recent political discussions around cuts to negative gearing. Last year the Reserve Bank made the point that if there was a time to be discussing negative gearing it would be now, given the low interest rate environment. Investors will also watch for any views on the Australian dollar.

·       On Thursday, the ABS will release two publications. The first covers demographic changes over the September quarter while the other publication is entitled “Finance and Wealth” for the December quarter.

·       Population growth has slowed over the past three years. In December 2012, the population was growing at a 1.78 per cent annual rate – the fastest in three years. But currently annual population growth stands at 1.35 per cent – the slowest rate in nine years. Understandably in-bound migration has eased in line with slower growth of the economy.

·       Despite the slowdown, population growth in Australia is still high on a global scale, highlighting Federal Treasury’s PPP policy to address the coming challenges of an ageing population. The desire is to increase population growth, workforce participation and productivity growth.

·       The “Finance and Wealth” publication, also for release on Thursday, will show – amongst other things – the state of household wealth (most likely at record highs) as well as data showing the share of cash held in superannuation accounts and the proportion of our bond and listed equities markets held by foreigners.

·       And also on Thursday the ABS releases detailed job market data such as employment across industry sectors and unemployment rates for regions.

US housing sector data in focus

·       The past week was dominated by the US Federal Reserve meeting and resulting changes to forecasts. In the coming week, the US will continue to hold centre stage with the release of a number of indicators on the housing sector and revised estimates on US GDP. Investors will also focus on the “flash” manufacturing PMI’s released across the globe – Japan, the US, France, Germany and the Eurozone – on Thursday.

·       The week kicks off on Monday with the Chicago Fed National Activity Index and existing home sales for February. Economists expect a 2.4 per cent slide in existing home sales.

·       On Tuesday, there is raft of economic indicators in the US. The Federal Housing Finance Agency survey on home prices is released alongside the influential Richmond Federal Reserve survey. The usual weekly chain store sales figures are also issued. Home prices are expected to lift by 0.5 per cent in January to be up 5.2 per cent, while the Richmond Fed Index is expected to improve from -4 to -2.

·       On Wednesday the usual weekly data on home purchase and refinancing is issued with data on new home sales also slated for release. New home sales are expected to rebound by around 1.2 per cent in February after a 9.2 per cent slide in January.

·       On Thursday, the usual weekly data on claims for unemployment insurance is released together with the preliminary estimate durable goods orders for February – goods designed to last three years or more. The figures also provide a proxy for business investment. Economists tip a 2.5 per cent fall in orders with non-transport goods down 0.1 per cent.

·       And on Friday in the US, the final estimate of economic growth for the December quarter alongside personal consumption for the December quarter. The quarterly GDP or economic growth data is published three times a quarter and economists expect annualised growth of 1 per cent to be confirmed. The final reading on personal consumption is tipped to show a 2 per cent lift in the December quarter.

Sharemarket, interest rates, currencies & commodities

·       There has been a lot of focus in the recent lift in the level of the Australian dollar. The Aussie dollar lifted to eight-month highs of around US75.95 cents earlier this week. The lift was largely driven by the improvement in commodity prices, in particular the strength in iron ore prices.

·       And while the stronger Aussie dollar is great news for households, it is not in the best interests of the broader domestic economy – especially in light of the efforts by policymakers to support the rebalancing of the economy away from the mining investment downturn.

·       If the currency remains persistently high in coming weeks, it may be that the Reserve Bank once again starts the process of “jawboning” – talking down the Aussie dollar. In fact he process may have already started even before the Aussie dollar had its latest lift. Last week the Deputy Governor Phillip Lowe commented that he prefers to see the Australian dollar a little lower, while a month ago, Reserve Bank Board Member John Edwards said he would be more comfortable with the currency at around US65 cents.

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