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Economics | February 5 2015

Investor Signposts: Week Beginning February 8 2015

Upcoming economic and financial market events

Australia Monday February 9 ANZ Job Advertisements (January) Hiring has lifted for the past seven months

Monday February 9 RBA Governor speech Speech at RMB clearing lunch

Tuesday February 10 NAB Business survey (January) Smoothed business conditions are near 3yr highs

Tuesday February 10 ABS House Price Index (Dec Quarter) Data from the Bureau of Statistics

Wednesday February 11 Consumer sentiment (February) The rate cut may have boosted sentiment

Wednesday February 11 Housing finance (December) The number of loans may have risen by 4%

Thursday February 12 Employment/unemployment (January) Jobs are tipped to fall by 5,000

Thursday February 12 RBA Assistant Governor Speech Guy Debelle speaks at FX Week conference

Friday February 13 Testimony by RBA Governor House of Representatives Economics Committee

Overseas Sunday February 8 China Exports & imports (January) A solid trade surplus of US$48.2bn is expected

Tuesday February 10 China inflation (January) Producer price deflation; tame consumer prices

Tuesday February 10 US Wholesale inventories (January) A 0.2% lift is tipped

Thursday February 12 US Retail sales (January) Economists tip weaker post-Christmas sales

Thursday February 12 US Business Inventories (December) A solid 0.7% rise is expected

Friday February 13 US Consumer Sentiment (February) Colder weather may be offset by lift in stockmarkets

Reserve Bank remains in the spotlight Another big week of economic events is in prospect in Australia over the coming week, including key data on the

labour market. In addition you could be forgiven for thinking that the Reserve Bank would take a step back given the prominence it held over the past week with an interest rate decision and also with the release of the Statement of Monetary Policy. But with a couple of speeches and the Governor fronting the House of Representatives Economics Committee on Friday, the Reserve Bank will dominate investor attention. In China, trade and inflation figures are in focus. And in the US, retail sales and industrial production data are due.

In Australia, the week kicks off on Monday when ANZ releases data on job advertisements. In the past, budding employers would advertise positions in newspapers or on job websites. Now positions are more likely to be found on individual company websites, social media or sent directly to smartphones. So while the data on job ads is less instructive, figures show that the have still risen for the past seven months. Also on Monday the Reserve Bank Governor delivers a speech at the Bank of China Renminbi Clearing Bank launch.

Economic Insights

February 5 2015 2

Investor Signposts Week Beginning February 8 2015

On Tuesday the NAB business survey and indexes of residential property prices from the Bureau of Statistics (ABS) are released. Investors will be looking for improvement in the NAB business survey after the December results suggested that business conditions has slipped further from 3-year highs. There will be less interest in the ABS home price measure as more complete and timely figures have already been released.

On Wednesday, the Westpac/Melbourne Institute monthly measure of consumer sentiment is released – a survey that provides a useful check on the similar and timelier Roy Morgan weekly survey (released Tuesday). On the same day home loans (housing finance) for December are released.

The home loan data may prove a concern to the Reserve Bank in coming months (in light of the recent rate cut) with data from the Bankers Association suggesting the number of owner-occupier home loans may have lifted by 4 per cent in December while the value of all loans jumped 8 per cent.

On Thursday, the ABS releases the latest job data for January. The statement following the Reserve Bank decision to cut interest rates also highlighted concerns of a further lift in unemployment due to the sluggish below trend growth. Interestingly jobs growth was solid over the latter part of 2014 with unemployment falling for the past two months.

After rising by 37,400 in December, we think employment eased by around 5,000 people in January. With a mild fall in workers looking for work (participation rate – expectation 64.7 per cent) the unemployment rate was probably steady at 6.1 per cent.

If employment surpassed our forecast and followed the recent improvement and unemployment fell towards 6 per cent, then questions would arise if the Reserve Bank February rate cut was validated. Clearly it would take more than one month’s worth of data to signify a trend but there has been a solid lift in jobs growth. The key question is if the pace of hiring is strong enough to offset those exiting jobs?

And on Friday, the Reserve Bank Governor faces a grilling by politicians. And providing that they can abstain from playing politics and ask questions of real interest, then real value can come from the session – such as the Governor’s view of the ideal level of the Australian dollar and the likely triggers for another interest rate cut.

China trade and US retail sales dominate attention Turning attention overseas and China will be the focus in the early part of the week. On Sunday China releases

trade data for January. In December, China recorded a healthy surplus of US$49.6 billion with exports up 9.7 per cent on a year ago and imports down 2.4 per cent. It is likely that exports continued to record a healthy lift in January with the trade surplus holding around $48 billion.

On Tuesday, China issues January data on inflation – producer and consumer prices. Producer deflation is still being recorded while consumer prices are tame, up 1.5 per cent over the year. Also in China, data on money supply and lending are expected over the week.

Shifting to the US, the week kicks off on Tuesday with the release of wholesale trade and inventories alongside the usual weekly data on home purchase and refinancing.

But the key focus will be the retail sales data released on Thursday alongside business inventories and the regular US weekly data on new claims for unemployment insurance (jobless claims). Forecasts centre on retail sales easing by 0.3 per cent in January after a 0.9 per cent fall in December. A modest 0.2 per cent lift in business inventories is expected.

On Friday, the University of Michigan releases a preliminary reading on US consumer sentiment. The lift in share markets, and cheaper gasoline are likely to be offset by the colder weather.

Sharemarket, interest rates, currencies & commodities The Australian profit reporting season cracnks up a notch in the

coming week as the US earnings season starts to wind down.

On Tuesday earnings announcements are expected from Cochlear and Bradken. On Wednesday, AGL Energy, CSL, Commonwealth Bank, Domino’s Pizza, Stockland and Suncorp are scheduled to issue results. On Thursday, ASX and Telstra are amongst companies reporting. On Friday resource companies Rio Tinto and Newcrest Mining are listed to report.

Savanth Sebastian, Economist, CommSec Twitter: @CommSec