Savanth Sebastian – Economist – CommSec
Reserve Bank Board meeting, retail trade dominate focus
· The Reserve Bank Board meeting and ‘top shelf’ economic data dominate the economic calendar in the coming week. The Reserve Bank Board meets on Tuesday, while the data to watch includes building approvals and retail trade, due out on Tuesday and Wednesday respectively. In the US, the focus is on the employment data, released on Friday. And in China, Europe and the US the services sector purchasing manager indexes will be watched closely.
· In Australia, the week kicks off on Monday with three data releases and also a public holiday in NSW. The Melbourne Institute releases the monthly inflation survey, while the AiG Performance of Manufacturing index is also slated for release. In addition CoreLogic will release figures on home prices for September
· Inflation remains well contained, so it is clear that the focus on Monday will be on the home price figures. The Spring selling season has begun in earnest. Auction clearance rates are holding at around 75-80 per cent, particularly across the Eastern Seaboard. In August capital city home prices surged by 1.1 per cent to be up 7 per cent on a year ago. Yet regional prices were only up 1.4 per cent over the year – highlighting the diversity of housing activity across regions. Overall it looks like capital city home prices may have lifted by a further 0.8 per cent in September.
· The Reserve Bank Board meeting on Tuesday should be treated as a dead rubber. Rates are unlikely to move in any direction. Recent commentary from the Reserve Bank makes it clear that while there is an “implicit” easing bias, the focus is on getting readings of timely economic data and waiting for the next inflation data.
· Interestingly the statement following the interest rate decision will be closely scrutinised for any views on the Australian dollar. Despite recent benign comments on the currency, the Reserve Bank may have more to say given the Aussie dollar is comfortably holding closer to US77 cents.
· While we have a November rate cut pencilled in, it is looking less likely that the Reserve Bank will shift rates over the rest of 2016. Inflation remains well contained but stronger activity and growth may result in the Reserve Bank keeping its powder dry.
· Also on Tuesday, ANZ issues its job advertisements report for March and also teams up with Roy Morgan to issue the weekly consumer confidence data. In addition the Australian Bureau of Statistics (ABS) will release figures on building approvals.
· The consumer confidence results have been decidedly more optimistic in the past couple of weeks – particularly when it comes to family finances, a result that bodes well for future spending.
· Building approvals have been volatile, over the past few months. Dwelling approvals rose by 11.3 per cent in July, driven by a 23.4 per cent rise in apartment approvals. Over the past year 234,996 new homes were approved, just shy of the record high 240,880 in the year to October 2015. The anticipated lift in housing supply should ensure a more balanced environment – in essence house price growth is likely to be more contained over the medium term.
· On Wednesday, retail trade figures are issued alongside the Performance of Services index and new car sales figures for September.
· Consumer spending has been mixed over the first half of 2016. In fact retail trade is only up 2.7 per cent over the year and non-food retailing is recording the weakest annual growth in three years. However there are more encouraging signs with the Commonwealth Bank Business Sales Indicator showing a recent lift in broader-based economic activity. In addition the strength in household finances resonates well for a lift in retail activity in coming months. For the record we expect that retail trade lifted by 0.5 per cent in August.
· Also on Wednesday, Reserve Bank Assistant Governor Christopher Kent (economics) will be a panel participant at the Melbourne Institute Macroeconomic Policy Meeting in Melbourne (AEDT 4:30pm).
· On Thursday, data on international trade is issued with the Performance of Construction index.
Overseas: US employment data hogs the spotlight
· The start of a new month ensures that there is plenty to watch overseas – notably the US jobs data on Friday.
· The week kicks off on Monday with a number of indicators for release in the US. The Markit reading on the manufacturing sector is issued alongside construction spending data.
· On Tuesday in the US, domestic vehicle sales for September are released.
· On Wednesday the usual weekly data on US home purchase and refinancing is issued with the ADP survey of private sector payrolls. Economists tip a 157,000 lift in job numbers for the month of September, slightly lower than the August result.
· Also on Wednesday in the US, factory orders, trade data, the Markit service sector gauge and the final estimate on durable goods orders – a key measure of business spending – is released. Orders for durable, or long-lasting, goods may have fallen by 1.5 per cent in August, while the trade deficit may have widened from $39.5 billion to $42.5 billion.
· On Thursday, the usual weekly data on claims for unemployment insurance is released in the US, together with the Challenger job layoffs series.
· And on Friday in the US, the all-important monthly jobs report is issued. Main interest is in job numbers – in particular, the change in non-farm payrolls. And economists expect that 178,000 jobs were created in September, up from 151,000 in August. The unemployment rate may have held steady at 4.9 per cent with average earnings (wages) up 0.3 per cent. The wage reading is important. Higher wages infer higher inflation and higher interest rates.
· Also on Friday, consumer credit and wholesale inventories are released.
· In China, the Caixin purchasing managers’ index for the services sector is released on Saturday.
Savanth Sebastian – Economist – CommSec