Craig James – Chief Economist – CommSec

Business investment data in focus

·       The March quarter economic growth data is released on June 1. And in the coming week, pieces of the growth puzzle start to be put together. The other focal points in Australia will be speeches to be delivered by Reserve Bank officials including the Governor, Glenn Stevens.

·        The week kicks off on Tuesday with the release of weekly consumer confidence data from ANZ and Roy Morgan, while the Australian Bureau of Statistics is expected to release a research paper titled “Unemployment Duration in Australia” – providing a bit more colour on the employment landscape. However the weekly confidence data will be analysed more closely given the Federal Election campaign is currently underway.

·        Confidence levels lifted last week after the interest rate cut. It is clear that the Federal Budget has not yet had a major impact on confidence. And it may be that the slide in the Aussie dollar has dulled the positive impact of the interest rate cut on confidence levels. Overall a lower Australian dollar is great news not just for export-orientated businesses but also the broader economy. However Aussie households tend to view a lower Australian dollar as a negative, making overseas travel and overseas online purchases more expensive.

·       Also on Tuesday Reserve Bank Governor Glenn Stevens will be delivering a speech at the Trans-Tasman Business Circle boardroom briefing at 1.05 pm AEST. The question and answer session following the speech is open to the media and will prove interesting.

·       Also on Wednesday, preliminary data on construction work is released for the March quarter. The data on residential work completed is an input into the calculation of quarterly economic growth (released on June 1).

·       On Thursday, the ABS will release the March quarter estimates of business investment. This data is also an input into the calculation of economic growth. But also insightful are the estimates of planned investment for the coming year.

·       While the Reserve Bank will be particularly interested in estimates of completed non-mining investment, there will also be focus on future spending plans. In the March quarter the first estimate of investment in 2016/17 was just $82.57 billion (weakest result since 2007/08), and 19.5 per cent lower than the first estimate for 2015/16 – marking the largest fall for a first estimate reading in records going back 25 years.

·       Overall we expect that investment fell by 3.5 per cent in the quarter, reflecting the winding down of the mining construction boom.

·       Also on Thursday, the Reserve Bank Assistant Governor (Financial Markets), Guy Debelle, delivers a speech at the Forex Network Conference in New York (11.00 pm AEST). And Assistant Governor Debelle is back on Friday as a panel participant at the ACIFMA America event on the BIS FX code (8.30 am AEST).

Mixed bag of US economic data; Fed Chair Yellen to speak

·       In the US, there is the usual bevy of economic indicators to be released with the focus on the housing sector. Also over the week a number of Federal Reserve officials will give speeches, including chair, Janet Yellen.

·       The week kicks off on Monday with the Markit “flash” estimates of manufacturing activity in US, Japan and Europe.

·       On Tuesday in the US, new home sales is released alongside the influential Richmond Federal Reserve index. New home sales are expected to have lifted by 1.8 per cent in April after falling by 1.5 per cent in March.

·       On Wednesday the preliminary reading of the Markit services sector index is released in the US together the Federal Housing Finance Agency home price series and the usual weekly data on home purchase and refinancing. Annual growth rate of home prices may have edged up from 5.7 per cent to 5.8 per cent in March.

·       On Thursday, estimates on durable goods orders – a proxy for business investment – are released together with the usual weekly data on new claims for unemployment insurance (jobless claims) and pending home sales. And just like new home sales, pending sales may have lifted by around 1 per cent in April.

·       And on Friday in the US, the second (preliminary) estimate of economic growth is released with personal income, consumption data and consumer sentiment. US economic growth may have lifted at a 0.8 per cent annual rate in the March quarter, up from the “advance” reading of 0.5 per cent. The Federal Reserve’s preferred inflation estimate is contained in the personal income release.

·       Also on Friday Federal Reserve Chair, Janet Yellen, participates in a panel titled “Building an economy for prosperity and equality.”

Sharemarket, interest rates, currencies & commodities

·       There has been a lot of interest in the recent slide of the Australian dollar. The Aussie dollar was near US77.2 cents just over a fortnight ago, ahead of the Reserve Bank interest rate decision. And given the surprising rate cut and change in Reserve Bank inflation forecasts, the Aussie dollar fell to lows near US72.35 cents earlier this week.

·       The question is where to for the currency from here? CBA currency strategists have released updated currency forecasts – lowering end 2016 forecasts from US78 cents to US73 cents. Expectations of a further two rate cuts in Australia and a lower forecast profile for the US federal funds rate – with only one rate hike now expected in 2016 – were the drivers of the lower Aussie dollar forecast. 

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