Reserve Bank to the rescue
• If it wasn’t for the Reserve Bank, the upcoming week would be quite dull. But there are three speeches by Reserve Bank officials in the coming week.
• The week kicks off on Monday when the Commonwealth Bank releases the April business sales indicator, a measure of economy-wide spending.
• On Tuesday the Reserve Bank Deputy Governor Guy Debelle is set to deliver a speech entitled “How I Learned to Stop Worrying and Love the Basis”- at the BIS Symposium: CIP – RIP? in Basel, Switzerland. While entertainingly worded, the speech probably won’t drive financial markets.
• Also on Tuesday the Housing Industry Association releases the “Population and Residential Building Hotspots Report 2017” while Roy Morgan and ANZ release the usual weekly measure of consumer confidence. Confidence levels have fallen after the Federal Budget.
• On Wednesday the Australian Bureau of Statistics (ABS) releases data on Construction Work Done. The data contains estimates of residential, commercial and engineering work completed in the March quarter. The residential work figures will feed in directly to the calculation of economic growth in the quarter.
• In the December quarter construction work done fell by 0.2 per cent in real (inflation-adjusted) terms after falling by 4.4 per cent in the September quarter. Work done is down by 7.8 per cent on a year ago. Public sector construction work fell by 1.6 per cent in the quarter while private sector activity rose by 0.2 per cent.
• But residential building rose by 1.1 per cent in the December quarter and was up by 5.7 per cent over the year. Alterations & additions rose by 2.1 per cent in the quarter while new residential work rose by 1.0 per cent.
• On Thursday the ABS will release detailed job market estimates for April. The main interest is in the geographic and demographic break-up of the data. Participation rates amongst young people have proven historically low in recent years. In contrast, more seniors have been actively looking for work.
• Also on Thursday two Reserve Bank officials are scheduled to deliver speeches. Michele Bullock, Assistant Governor (Financial System), delivers a speech at Australia’s Biggest Business Morning Tea 2017 in Sydney. And on the same day – eight hours later – Guy Debelle, Deputy Governor, delivers opening comments at the launch of the FX Global Code in London.
Overseas: Quiet week also in the US
• Not only is it a quiet week for economic data in Australia – the US also has a strangely thin schedule of economic events.
• The week begins on Tuesday with data on new home sales to be released for April. In March, annualised sales rose 5.8 per cent to 621,000 – one of the highest results in nine years. The inventory of new homes for sale fell to 5.2-months’ supply, down from 5.4 months at the end of February.
• In the US on Wednesday, the Federal Reserve releases minutes of the last policymaking committee held over May 2 and 3. Pricing has been wavering on the likelihood of further rate hikes in 2017. The minutes will highlight the economic variables that policymakers are watching most closely.
• Also in the US on Wednesday the usual weekly data on mortgage applications is released together with data on existing home sales and the Federal Housing Finance Agency (FHFA) housing price index.
• In March, existing home sales hit decade highs, up 4.4 per cent to a seasonally adjusted annual rate of 5.71 million units. At the current sales pace, unsold inventory is at a 3.8-months’ supply. Economists estimate that six months’ supply is more indicative of a balanced market.
• On Thursday in the US the usual weekly data on claims for unemployment insurance is released.
• And on Friday in the US, the April data on durable goods orders is released – a key measure of business investment. In March, orders were up 0.9 per cent – the third straight monthly gain.
• Also on Friday the second (preliminary) estimate of US economic growth for the March quarter is released. “Advance” data suggested the economy only grew at a 0.7 per cent annualised pace in the March quarter. But weaker inventories cut 0.9 percentage points (pp) from growth with government spending subtracting 0.3pp. Still, output in the quarter was around 2 per cent above a year ago – a solid, sustainable rate of growth when you consider that personal spending was also soft in the quarter.
• One of the most remarkable features of financial markets over 2017 has been the lack of volatility. That is, up to now. Overnight in the US the so-called “fear gauge” – the CBOE Volatility Index (Vix) – rose by over 46 per cent. In contrast, in early May the Vix had hit the lowest levels in 23 years. Up to yesterday, investors have seemingly ignored events like missile tests by North Korea, rate hikes in the US and military action taken against Syria, But now investors are taking notice about the political travails of President Trump. Former FBI Director James Comey is due to testify next week.
• The absence of volatility up to now wasn’t confined to the US, Australian cash rates haven’t budged in 2017 and 90-day bank bill yields have moved by just 8 basis points since the start of the years, from 1.74 per cent to 1.82 per cent.
• Have Sydney property prices peaked? The CoreLogic daily price series peaked on April 11 and in just over a month prices have retreated by 1.6 per cent. Melbourne home prices have also eased 1.3 per cent from highs.