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Savanth Sebastian – Economist – CommSec

Quiet week ahead in Australia

• As was the case in the past week, there are no ‘top shelf’ indicators due for release in Australia in the coming week.

• The week kicks off on Tuesday when Roy Morgan and ANZ release the weekly consumer confidence reading. Aussies consumers have become a bit more downbeat of late with the latest confidence reading the lowest in eleven months. No doubt the discussion about risks in the housing market have spooked some. The question is whether the significant amount of home building underway at present gives way to localised oversupply, driving down home prices.

• Certainly home prices have lifted significantly in places like Sydney and Melbourne. And more homes (especially apartments) are being built. But interestingly the latest data suggests that existing home buyers aren’t selling up, and that is another factor intensifying demand for the number of properties on the market.

• In the December quarter, property settlements in Sydney were the lowest for any December quarter in the past 11 years. And while Generation Y are getting their own places in other cities and states, in Sydney the number of people per household remains relatively stable and higher than other cities.

• On Tuesday there is speech from Reserve Bank Deputy Governor Guy Debelle to be delivered to the FX Week Australia conference. Investors will watch for any new warnings about the state of play in the housing industry.

• On Thursday, there are three items of note. First, the Bureau of Statistics releases the Finance & Wealth publication. Second, the ABS issues data on job vacancies. And third, the Housing Industry Association releases data on new home sales.

• The Finance & Wealth publication includes a raft of indicators such as the share of bonds or equities held by foreign investors; the average wealth level of Aussie families; and cash holdings by consumers, businesses and fund managers. The data should show that wealth is at record highs but it will interesting to see how much debt has risen in comparison.

• The job vacancies data is a key forward-looking gauge on the job market, like job advertisements. The difference being that vacancies data is only released quarterly while job ads is issued monthly. In broad terms, vacancies and ads are both at, or near, 5-year highs, pointing to positive prospects for employment.

• The home sales data is important in getting a sense of the supply component of the supply-demand equation. While home sales eased 2.2 per cent in January, the number of sales remains comfortably above both 5-year and 10-year averages.

• And on Friday the Reserve Bank releases the private sector credit data – effectively measuring the changes of outstanding lending. The data has proved a little volatile in the past few months, surging 0.7 per cent in December before inching 0.2 per cent higher in January. On average, credit has been growing around 0.4-0.5 per cent a month and similar growth is tipped for the February data.

Quiet times continue in US and China

•  In the US there are healthy offerings of new economic data, but the indicators are more ‘second tier’ rather than top shelf. But there will be at least 10 more speeches by Federal Reserve presidents and officials to digest. In China the purchasing manager surveys will be issued on Friday.

•  The week kicks off on Monday in the US with the release of the Dallas Federal Reserve manufacturing business index.

•  On Tuesday, there are a number of indicators to watch. Advance readings on international trade and inventories, both for February, are scheduled. The influential Richmond Federal Reserve survey is also released. And the usual weekly data on chain store sales is also issued.

•  But of more interest on Tuesday will be the March consumer confidence results together with the Case Shiller survey of home prices for January. Consumer confidence lifted to 15-year highs In February so there may be some retracement in March. And home prices may have lifted 0.8 per cent in January after a 0.9 per cent gain in November.

•  On Wednesday in the US, the pending home index is released alongside the usual weekly data on housing finance. And on Thursday in the US the usual weekly data on jobless claims is released alongside the final estimate of economic growth (GDP) for the December quarter. The US economy is growing near a 2 per cent annual pace.

•  On Friday in the US, data on personal incomes and spending is issued with the Chicago purchasing managers’ index. Economists think incomes rose 0.4 per cent with spending up 0.2 per cent. The spotlight will also shine on the Federal Reserve inflation measure – the core personal consumption deflator. Annual price growth is 1.7 per cent. Any easing in the inflation estimate and the Fed can take time in lifting rates, weighing on the greenback.

•  Also on Friday in China the National Bureau of Statistics releases the “official” purchasing manager surveys covering the manufacturing and services sectors.

Financial markets

•  Total returns on Australian shares – dividends and share prices – have been consistently hitting record highs since mid-February. The All Ordinaries Accumulation index may be up just 3 per cent over 2017 but it is up by a more meaningful 16 per cent over the past year. In fact annual growth of sharemarket returns has been holding above 15 per cent for most of 2017.

•  In terms of share prices, the Aussie sharemarket has under-performed in 2017, lifting around 2 per cent and is in 51st spot of 73 bourses. The US Dow has lifted around 6 per cent and is in 26th spot. Hong Kong and India have lifted around 10 per cent in 2017 and near the top of the ranking list.

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