Savanth Sebastian – Economist – CommSec
New month, new quarter, new financial year
· The Reserve Bank dominates the economic calendar in the coming week. The Reserve Bank Board meets on Tuesday, while the data to watch includes job advertisements and retail trade, due out on Monday and Tuesday respectively. In the US, the focus is on the minutes of the June Federal Reserve meeting, released on Thursday and the employment data out on Friday. .
· The week kicks off on Monday with ANZ publishing its series on job advertisements while TD Securities and Melbourne Institute issue its monthly inflation gauge. Also the Australian Bureau of Statistics (ABS) releases data on building approvals.
· Building approvals have been volatile, over the past few months. Dwelling approvals rose by 3 per cent in April, while the value of all building soared by 18.3 per cent – the biggest monthly rise in four years. Building was at record highs in trend terms. It is clear that overall home building will be a big driver of economic growth over the coming year. For the record we expect a 3 per cent fall in approvals in May.
· The job market remains in solid shape. In May job advertisements posted the biggest rise in eight months to be up more than 9 per cent on a year ago. Still it’s important to note that job ads aren’t as good a leading indicator on employment as they were a few years ago.
· Turning to the inflation gauge, the headline index fell by 0.2 per cent in May. The annual rate of inflation eased from 1.5 per cent to 1 per cent. Excluding volatile items like petrol and fruit & vegetables, the core inflation gauge was up by 1.5 per cent over the year. The bottom line being that inflation remains well below the Reserve Bank’s 2-3 per cent target band.
· On Tuesday investors will focus on the Reserve Bank Board meeting. The weak inflation landscape and volatile financial markets is likely to weigh against higher home prices and healthy consumer confidence.
· Until last Friday, the RBA seemed likely to await the next quarterly inflation reading in late July before deciding whether to lower the cash rate again. But while August is still the meeting most likely to see a cut, the meeting on the 7th of July is now very much ‘live’ given the financial market volatility.
· Also on Tuesday the (ABS) releases the May data on retail trade and international trade, while ANZ and Roy Morgan will issue the weekly consumer sentiment reading. At present households are in a happy place, with consumer confidence easing a touch from 2½-year highs last week.
· Consumer spending has been soft in recent months, ahead of the Federal election. However the lift in consumer confidence – particularly the upbeat measure on whether it is a good time to buy a major household item – is encouraging. We expect retail trade to rise by 0.2 per cent in May after a similar lift in April.
· On Wednesday, data on tourist arrivals is released. Interestingly tourists to Australia from mainland China have lifted to record highs. Tourists from China and Hong Kong combined exceeded 1.35 million in the past year, up 21 per cent over the year and moving well past the 1.31 million visitors from New Zealand.
US employment under the spotlight
· In the US the highlight in the coming week is the release of employment data on Friday, while investors will also pay attention to the Federal Reserve minutes released on Thursday.
· The week kicks off on Tuesday when data on factory orders, and the regional ISM New York survey are released. Economists expect factory orders to have eased by around 2 per cent in May while the New York ISM survey should continue to show a mild contraction. Also the final revisions on durable goods orders – proxy for business investment – for May are released.
· On Wednesday, the trade balance for May is released, with expectations of a deficit of $40 billion.
· On Thursday, the usual weekly data on claims for unemployment insurance is released alongside the ADP private sector employment report and also the ISM service index for June. . Economists tip an 185,000 rise in private sector jobs for June.
· Also on Thursday minutes of the June Federal Reserve meeting. The minutes should provide investors with a little more information on the ‘hot button’ issues for Federal Reserve members.
· And on Friday, the June data on employment is released – the non-farm payrolls data. Economists expect that a 190,000 new jobs created in June. While the unemployment rate may have held steady at 4.7 per cent. Also on Friday consumer credit (lending figures) are released.
Sharemarket, interest rates, currencies & commodities
· With the 2015/16 year now almost complete, it is an opportune time to provide investors with an update of how investments, financial markets and economies have performed over the past year.
· Overall, it has been another challenging year, but one that should provide satisfaction for Australian policymakers. Economic growth has lifted, not slowed. That is despite the transition from the once-in-a-century mining construction boom to mining production and housing-driven growth. The inflation rate has eased, in line with global experience. Cash rates were cut to record lows in May. Iron ore and oil prices fell, but then rebounded. The US lifted interest rates for the first time in nine years. And the financial year is ending with jitters about the UK vote to leave the European Union membership.
· The Australian sharemarket started 2015/16 with the All Ordinaries at 5,451.2 and the ASX200 at 5,459. Currently the All Ords is near 5,221 points (down 4.2 per cent) with the ASX200 at 5,142.4 (down 5.8 per cent).
· Of the 21 current industry sub-sectors, 12 sectors are currently higher over 2015/16. The key under-performer has been Energy, down by 26.6 per cent, followed by the Banking (down 17.3 per cent) and Insurance (down 10.2 per cent). Sectors. Strongest growth has been by the Autos & Components sector (up 27 per cent) followed by Pharmaceutical & Biotechnology (up 22.6 per cent) and Food, Beverage & Tobacco (up 22.3 per cent) and.
Savanth Sebastian – Economist – CommSec