Savanth Sebastian – Economist – CommSec

Economic growth and Reserve Bank Board meeting

·        Week two of the summer tsunami beckons – a fortnight where almost 20 key economic events are scheduled. Highlights include the Reserve Bank Board meeting on Tuesday and economic growth figures on Wednesday.

·        In Australia the week kicks off on Monday. The Australian Bureau of Statistics (ABS) releases the Business Indicators publication. New car sales data is released while ANZ releases the November data on job advertisements.

·        The Business Indicators publication includes data on profits, sales, wages and inventories. The inventories data will provide another clue to how fast the economy grew in the September quarter.

·        And the job ads data will provide insights on where the job market is headed. The October data put job ads at 4-year highs.

·        On Tuesday, the Reserve Bank Board meets for the last time before February 2017. No change in rate settings is expected.

·       Also on Tuesday there are more pieces of the economic growth jigsaw puzzle to be provided. The Government finance accounts are released with the broader trade accounts – balance of payments. The weekly consumer sentiment data is also released on Tuesday.

·        On Wednesday, the ABS releases the National Accounts publication for the September quarter. Apart from including the latest economic growth figures, there are insights into income and spending of consumers and businesses.

·        We expect that the economy grew by around 0.4 per cent in the September quarter, pushing economic growth down from 3.3 per cent to 2.8 per cent – around the ‘speed limit’ of growth for the economy.

·       On Thursday, the ABS will release the October trade data (exports and imports). Exports may have been boosted by record output of the mining sector as well as higher mineral and metal prices. A deficit near $500 million is forecast.

·        On Friday, the ABS will issue the October data on housing finance. Most interest is in the new finance commitments by banks and brokers. We tip a 1.5 per cent fall in the number of loans to owner occupiers with the value of all lending largely unchanged.

·        But analysts will start looking more closely at the loans actually advanced as well as loan cancellations for sharper insights on where the housing market is headed.

China takes centre-stage

·        While there are the usual bevy of US economic indicators to be released in the coming week, Chinese trade and inflation figures may get more interest by Australian investors.

·        The week kicks off on Monday in the US with the release of the Institute of Supply Management (ISM) survey for the services sector. The activity index may have lifted from 54.8 to 55.2 – well above the 50 break-even level.

·        On Tuesday, data on US international trade is released with factory orders and the usual weekly figures on chain store sales.

·        On Wednesday in the US, consumer credit data is released with the JOLTS survey of job openings. The usual weekly data on housing finance is also on the agenda.

·        Consumers are taking on more debt at low interest rates with credit seen lifting US$18 billion in October – close to the average monthly lift in the past three years.

·        On Thursday in the US, the usual weekly data on claims for unemployment insurance is due. While on Friday, data on wholesale sales/inventories are released together with the first estimate of consumer sentiment for the month of December.

·        Turning to Chinese economic data, trade data is released on Thursday while inflation figures – both producer and consumer prices – are released on Friday. The exports data is more a reflection on the state of the global economy – more will be exported if the demand lifts. And imports data is more a reflection of Chinese spending as well as price trends. Exports are down 7.3 per cent over the year but imports are down by just 1.4 per cent.

·        The Chinese inflation data should confirm that deflation (or even, disinflation) is not a major concern, but neither is inflation. Still, it is a trend that needs close monitoring.

Financial markets

·        The end of the year is fast approaching so it is worth checking where we currently stand.

·       The ASX 200 is up by around 2.7 per cent over 2016 so far with the All Ordinaries up 3.0 per cent. But total returns on shares are up 7.2 per cent, highlighting the importance of dividends.

·       The Aussie dollar started the year near US72 cents. The low point of US68.24 cents occurred in January while the high of US78.35 cents occurred in April. The Aussie is up around 1 per cent so far in 2016.

·       And 90-day bills started 2016 at 2.38 per cent with 10-year bonds at 2.89 per cent. Currently 90-day bills are at 1.76 per cent and 10-year bonds at 2.78 per cent, after yields fell to 1.85 per cent in August.

>> BACK TO THE NEWSLETTER: Click here to read other articles from this week’s newsletter