The Experts

James
Craig James - CommSec
Economy Expert
+ About Craig James
About Craig James

Craig James is CommSec’s Chief Economist.

On leaving school Craig James joined the (then) Rural Bank, whilst undertaking university studies. He received his Bachelor of Commerce (Economics) at University of NSW in 1984 and then a Master of Commerce (Economics) at the same university in 1988.

He remained at the Rural Bank, which became the State Bank over time and then Colonial, working in branches, Corporate, Planning and Economic Research.

He became chief economist of Colonial Group in September 1987, before becoming chief economist at CommSec in August 2000 with the Commonwealth takeover of Colonial.

In 2002 Craig had a sea-change, joining the Australian Financial Review. He had always wanted to pursue a role in journalism and enjoyed the role as an economic commentator and analysts, finding that he could pursue a journalistic-type role as well as doing more electronic media work at CommSec and rejoined the group in 2003.

On taking the reigns of chief economist at Colonial, Craig endeavoured to style their research in a “user-friendly” way – something that set their research apart and still does today. The approach has been successful in their media work and in promoting Colonial, and then CommSec, to the general public. CommSec is the most quoted economic group in the mainstream media.

CommSec economic reports are a bit different in that they devise tools such as the ‘Mums and Dads’ share index and the iPod index, and undertake research on the weather and demographic changes to show how they affect the economy.

Craig currently does around 2-3 regular TV crosses a day, ad hoc radio and newspaper interviews and writes regular commentaries as well as presenting to staff, clients and external organisations.

Outside work, Craig's main interests are athletics (cross country in winter), weight training, reading widely across a range of newspapers, magazines and electronic media, and trying to keep up with the children.

Investor Signposts: The financial year draws to a close

Friday, June 23, 2017

By Craig James

The financial year is drawing to a close, but there are no ‘first tier’ indicators to either close out the year, or usher in the new financial year. In the coming week, most interest will be on the latest demographic information.

Census Data

In Australia, the week kicks off on Tuesday when the Australian Bureau of Statistics (ABS) releases the first data from the 2016 Census. Across Australia, housing conditions are decidedly mixed. So the latest figures will throw new light on the true state of underlying demand for homes. At the same time, the ABS will release the December quarter population figures – figures that you would expect would be newly calibrated with the latest Census data.

The NSW, Victorian and ACT economies are leading the way at present because population growth in each economy is either near, or above, the decade-average – lifting the demand for homes as well as economic and social infrastructure.

Other data of interest

On Tuesday, ANZ and Roy Morgan publish the usual weekly consumer confidence figures. Lower petrol prices may have lifted spirits in the past week. Consumer confidence is merely OK at present.

On Thursday, the ABS releases the quarterly job vacancies data – a key leading indicator of the job market. And just like the monthly job advertisements data, the job vacancies figures have, for some time, signalled an improvement in labour market conditions. It is clear that these positive signals are now being reflected in the official data on employment and hours worked.

Also released on Thursday is the “Finance and Wealth” publication from the ABS. The data includes estimates of household debt and financial wealth, as well as statistics such as foreign ownership of shares and bonds and cash holdings of superannuation funds. Wealth in Australia is at record highs.

And also on Thursday, the Housing Industry Association releases the latest data on new home sales. If the data shows that more homes are being sold, then this could reinvigorate the early stage of the housing pipeline such as new applications to build homes.

On Friday, the Reserve Bank releases the Financial Aggregates publication, a publication that includes data on private sector credit (effectively, data on outstanding loans across the economy).

Overseas: The 2017 year is almost half over

While in Australia the focus in the coming week is on how the 2017/18 year has finished, overseas the key interest is on reviewing the performance of the first half of the 2017 calendar year.

The week begins on Monday in the US with May data on new orders for durable goods – goods like cars and computers that have a ‘shelf’ life’ greater than three years. Economists tip a 0.5 per cent fall in orders after the 0.8 per cent fall in April orders.

In the US on Tuesday, the CaseShiller measure of home prices is released with consumer confidence data. The usual weekly data on chain store sales is also released. The influential Richmond Federal Reserve survey is also released on Tuesday, with service sector gauges for the Texas economy.

In the US on Wednesday, the usual weekly data on mortgage applications is released together with advance data on international trade and inventories in the retail and wholesale sales sectors. In addition the pending home sales index is released.

On Thursday in the US, the final estimate of economic growth for the March quarter is issued. Annual growth is artificially low at 1.2 per cent with the underlying rate of growth closer to 2 per cent. 

And on Friday in the US, the May data on personal income and spending is released with the main interest centred on the Federal Reserve’s preferred measure of inflation. The final estimate of consumer sentiment for June is also issued together with the influential Chicago purchasing managers index.

In China on Friday, the National Bureau of Statistics will release purchasing manager survey results for manufacturing and services sectors.

Over the week, it is also worth noting that the San Francisco Federal Reserve President John Williams will be in Australia delivering a range of speeches.

Financial markets

It may come as a surprise, but the Australian sharemarket is set to post its strongest financial year performance in three years. Total returns on shares – as measured by the All Ordinaries Accumulation index – have lifted by 11.7 per cent so far in 2016/17 after 2 per cent growth in 2015/16 and 5.7 per cent growth in 2014/15. The ASX 200 index has lifted 8.3 per cent with the All Ordinaries up 7.4 per cent. 

While the Aussie sharemarket has lifted over the past financial year, other markets have done far better. The US Dow Jones index has lifted by 19 per cent in 2016/17 while the UK has gained almost 15 per cent and the Japanese Nikkei has risen by around 29 per cent. The Australian sharemarket ranks 55th of 73 bourses over the past year. Greece has been notable amongst the gainers, up 53 per cent.

Commodity prices have been decidedly mixed over 2016/17. The CRB futures index has fallen 13 per cent over the year, with oil down 12 per cent, gold down 6 per cent and sugar down 36 per cent. But iron ore prices have lifted 2 per cent, thermal coal has rise by 42 per cent and base metal prices have generally firmed over the period with lead, zinc and copper up between 18-25 per cent.

The Aussie dollar is on course for its least volatile year against the US dollar in 27 years. The range has been just US6.25 cents (from US71.52c to US77.77c). Over the financial year, the Aussie has lifted 1.8 per cent, making it just one of 45 currencies to lift against the greenback.

In terms of the official cash rate, there was only one change – the quarter per cent cut in the cash rate in August. The 1.5 per cent cash rate is the lowest since records began in 1959. 

Longer-term rates have been more volatile over 2016/17. Ten-year bond yields fell to as low as 1.85 per cent in August but rose as high as 2.99 per cent in March before settling near 2.40 per cent in the past month.

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Investor Signposts: What to watch

Friday, June 16, 2017

By Craig James 

There are no ‘top shelf’ indicators like retail sales or economic growth to be released in Australia over the coming week. But there are still plenty of indicators that can round out our knowledge about the economy.

In Australia, the week kicks off on Monday with the Reserve Bank Governor, Philip Lowe, providing comments in a panel discussion at the 2017 Crawford Australian Leadership Forum in Canberra. The scheduled comments are due at 9.30am, so a good way to start off the week with fresh insights on the economy.

Also on Monday, the Australian Bureau of Statistics (ABS) release the May data on new vehicle sales. Industry data has already been released and it showed that sales were the highest for any May month.

According to the Federal Chamber of Automotive Industries, new motor vehicle sales totalled 102,901 in May, up 6.4% on a year ago.

Passenger vehicles in May were up 1.6% on a year earlier, while sales of sports utility vehicles (SUVs) were up by 9.4% and other vehicles were up by 9.9%.

On Tuesday, the CommBank business sales indicator is released together with the ABS data on residential prices, while minutes of the last Reserve Bank Board meeting are also issued. ANZ and Roy Morgan publish the usual weekly consumer confidence figures. 

The CommBank business sales index is a measure of economy-wide spending. Meanwhile, the ABS data on home prices is a bit dated, covering the month of March. But the data includes estimates of the number of homes and the average number of people per home.

Based on the data, CommSec estimated that there were 2.476 people per home in December quarter 2016, down 0.4% on a year ago. The number of people per home has been falling in annual terms for 2½ years.

Surprisingly, the number of homes in Australia grew by 172,800 in the year to December after recording annual gains of 185,800 in September and 182,400 in June. It was the smallest annual lift in homes for 15 months.

The minutes of the Reserve Bank Board meeting are always closely dissected by analysts and investors. Comments on the job market, housing and the Federal Budget will attract most attention.

And investors will monitor whether consumer confidence has continued its trend improvement over the past month.

On Thursday, the ABS releases the usual detailed monthly data on the job market. However, each quarter the ABS provides additional estimates on employment by industry, so the May data will be of interest.

The May data should confirm that the Healthcare sector is the biggest employer in Australia. 

Overseas: US Housing sector in focus

The focus is very much on the housing sector in the coming week, with new data to be released in China and the US.

The week begins on Monday in China, with the May data on home prices. As has been the case across the globe, investors have been stepping up purchases of homes given the low interest rates on offer. Chinese home prices are currently 10.7% higher than a year ago. Annual price growth peaked at 12.6% in November and has been easing in the period since.

In the US on Tuesday, the broadest measure of trade – the current account – is released, while the usual weekly data on chain store sales is also issued. The US trade accounts remain mired in red ink, with the current account in deficit by US$112.4 billion in the December quarter. By comparison, Australia’s current account is close to balance.

In the US on Wednesday, the usual weekly data on mortgage applications is released together with data on existing home sales. Economists expect that sales edged up from a 5.57 million annual rate to 5.60 million in May. Home sales were at decade highs of 5.7 million in March this year.

On Thursday in the US, the usual weekly data on claims for unemployment insurance is released with the Federal Housing Finance Agency data on home prices, the leading index and the Kansas City Federal Reserve survey. Home prices have been growing at a near 6% annual pace for around two years.

And on Friday in the US, data on new home sales is released. Home sales were at 9½-year highs in March and are trending near the highs. The Markit “flash” readings on manufacturing and services sectors are released in the US, Europe and Japan – timely gauges on activity.

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Jobs and consumer confidence in focus

Friday, June 09, 2017

By Craig James

A raft of key indicators is released over the coming week but the spotlight is primarily on the job market and consumer confidence figures.

In Australia, the week kicks off on Monday with a public holiday in all states and territories except Western Australia and Queensland. But the Reserve Bank Deputy Governor Guy Debelle is scheduled to deliver a speech to the Global FX Code of Conduct Launch in Hong Kong via video link.

On Tuesday, National Australia Bank releases the monthly business survey while ANZ and Roy Morgan issue weekly consumer confidence figures. And the Australian Bureau of Statistics (ABS) releases the Overseas Arrivals and Departures publication.

Aussie businesses are clearly in good shape. The NAB business conditions index rose from +12.3 points to +14.3 points in April, a 9-year high. And the business confidence index rose from +6.5 points to +12.9 points, a 7-year high.

Even consumer confidence has been improving, hitting an 8-week high in the latest week.

In terms of the arrivals/departures figures, most interest is in the inflow of Chinese tourists, rising at a double-digit annual rate. And the credit card data should continue the trend of consumers cutting outstanding debt.

On Wednesday, another reading of consumer sentiment is issued – this time the monthly survey conducted by Melbourne Institute and Westpac. The monthly survey is largely a check on the weekly version. The same questions are asked by both surveys and the sample sizes of each survey are broadly the same.

The main benefit of the June consumer sentiment survey is an additional quarterly question about where consumers believe are the wisest places to put new savings.

In the March survey, “Real Estate” had its lowest ‘favoured’ reading on record (since 1973) at 11.6 per cent. Most people favoured putting new savings in the bank as the wisest place for savings (29.0 per cent of respondents).

On Thursday, the ABS releases the May jobs data. And it will need to be pretty special to top the April figures. 

In April, employment rose by 37,400 in April after rising by 60,000 in March. And the unemployment rate fell from 5.9 per cent to 5.7 per cent. The only glitch was hours worked, which fell by 0.3 per cent. But even on this measure, hours worked were up by 1.3 per cent over the year – the strongest annual growth in 11 months.

The Commonwealth Bank Group is tipping no change in employment in May and no change in the jobless rate.

Also on Thursday, the Reserve Bank releases its quarterly Bulletin – a report containing articles that provide valuable insights into Reserve Bank thinking on key issues.

And the Reserve Bank Deputy Governor, Guy Debelle, delivers another speech on Thursday, this time to the Thomson Reuters industry event in Sydney.

Overseas: US Federal Reserve hogs the limelight

After an unusually quiet week, the US economic calendar is more congested in the coming week. And on Thursday, the monthly download of activity data is released in China.

The week begins on Monday in the US, with the May data on the Federal Budget to be released. The budget deficit has taken a back seat to other issues in recent years but that could all change with flagged tax cuts and infrastructure spending.

In the US on Tuesday, the National Federation of Independent Business (NFIB) issues the May survey of small business sentiment. On the same day, the producer price index for May is released, while the usual weekly data on chain store sales is also issued.

The US Federal Reserve also meets over Tuesday and Wednesday with the decision announced at 4.00am AEST on Thursday. Economists are in broad agreement that the Fed will lift rates by a quarter of a percent. But the commentary will be important in guiding future rate expectations.

In the US on Wednesday, the usual weekly data on mortgage applications is released together with data on consumer prices and retail sales for May. The core measure of consumer prices (excludes food and energy) may have risen 0.2 per cent in the month to keep the annual rate stubbornly below 2 per cent. 

Retail sales may have risen 0.2 per cent in May after a solid 0.4 per cent gain in April.

In China on Wednesday, the May data on retail sales, industrial production and investment are released – potentially market-moving for the Aussie dollar.

On Thursday in the US, the usual weekly data on claims for unemployment insurance is released with import/export prices, Philadelphia Federal Reserve survey and production. 

And on Friday in the US, housing starts, capital flows data, consumer sentiment and the NAHB housing market index are scheduled.

 

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Investor Signposts: Plenty of economic ‘covfefe’

Friday, June 02, 2017

By Craig James

It is a quirk in the economic calendar that each new season gets ushered in with a barrage of economic data. So to the ‘autumn avalanche’. Around a dozen key indicators or events are scheduled for the coming fortnight.

In Australia, the week kicks off on Monday with the release of the “Business Indicators” publication from the Bureau of Statistics (ABS). The publication includes data on sales, profits, inventories and wages.

Profits rose sharply in the December quarter with “company operating profits” rising by 20.1 per cent to a record high of $77.8 billion after rising 1.5 per cent in the September quarter. Profits are up 26.2 per cent over the year. Profits may have lifted a further 10 per cent in the March quarter.

Also on Monday ANZ releases data on job advertisements while the Melbourne Institute inflation gauge and the Performance of Services index are also issued. Job ads rose by 1.4 per cent in April to be near 6-year highs.

On Tuesday the Reserve Bank Board meets. No change in interest rate settings is expected. And the commentary accompanying the decision is likely to be very similar to that of the previous month. It would be interesting if comments were made on fiscal policy settings after the recent Federal Budget.

In terms of economic data on Tuesday the weekly consumer confidence data from ANZ and Roy Morgan is released together with the balance of payments and government finance figures.

Confidence levels have risen for four out of the past five weeks however it is clear that Aussie consumers are just feeling OK at present. The confidence index is still a little below longer-term averages but well above the 100 line that separates confidence from pessimism.

The balance of payments data includes the current account – the broadest measure of Australia’s international trade position. And for the first time since the mid-1970s, Australia may have recorded a current account surplus. In fact a $200 million surplus would be the biggest surplus in 44 years.

The data also includes estimates on net exports (exports less imports). And together with the government finance data, the figures will be important inputs into the economic growth equation.

On Wednesday, the March quarter economic growth estimates will be provided. And at this early stage we expect that the economy grew by around 0.5 per cent in the quarter to be up 1.8 per cent on the year. Australia is in the midst of the world’s longest economic expansion in the modern era.

On Thursday, the international trade data for April is released. And the run of surpluses is set to continue with the Commonwealth Bank Group tipping a surplus of $2.3 billion.

And on Friday, housing finance data is released by the ABS together with the broader lending finance data. And by all accounts the tighter lending policies are having the desired impact with the number of loans for home owners expected to have fallen by 2 per cent in April while the value of all home loans may have been flat in the month.

Overseas: A quiet week ahead in the US

An unusually quiet week is in prospect for key US economic data. There is more interest in China with inflation and trade data to be released late in the week. And all eyes will be on Thursday’s UK election.

The week begins on Monday in the US, with the ISM services index due for release with factory orders, the employment trends index and the quarterly labour costs and productivity data. Economists tip a slight pull-back of the ISM services index from 57.5 to 57.1, remembering a reading above 50 indicates expansion of the sector. Labour costs may have grown at a 2.5 per cent annual rate with productivity largely unchanged.

In China on Monday, the private sector Caixin services index is released.

In the US on Tuesday, the JOLTS job openings index is released together with the usual weekly data on chain store sales. Job openings hit an 8-month high of 5.74 million in March and are not far from record levels, suggesting a healthy job market.

In the US on Wednesday, the usual weekly data on mortgage applications is released together with data on consumer credit. Credit has largely been trending sideways in recent years.

In China on Thursday, the May trade data is released while on Friday inflation figures are due for release. The trade data has proved a little volatile in recent months but in April imports were up nearly 12 per cent on a year ago with exports up 8 per cent. The trade surplus stood at just over US$38 billion in April.

Business inflation (producer prices) is coming off recent highs with annual growth at 6.4 per cent, down from highs of 7.8 per cent in February. But non-food consumer prices in China have been on the rise with the annual growth of 2.4 per cent not far off the fastest rate in 6½ years.

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 wholesale sales and inventories are due for release.

Financial markets

In the past decade, the All Ordinaries index has risen only twice in the month of June. The index rose by less than 0.1 per cent in June 2012 and you have to go back to June 2009 to find a 3.5 per cent increase. The months of June, September and November have traditionally been the worst months for Australian shares.

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Investor signposts: Business investment and retail sales

Friday, May 26, 2017

By Craig James

After a hiatus over the past week, the domestic economic data releases are back in focus. More than half-a-dozen key releases are scheduled and around a dozen events will dominate attention overseas.

In Australia, the week kicks off on Tuesday with the release of the building approvals publication from the Bureau of Statistics (ABS). In March, dwelling approvals fell by 13.4 per cent – marking the largest decline in almost 1½-years. But don’t read much into the slide in dwelling approvals. The data tends to be volatile on a monthly basis and the trend data is probably more interesting. In trend terms, approvals rose by 0.8 per cent – the first increase in ten months. For the record we expect approvals to rebound by 5 per cent in April.

Also on Tuesday the weekly consumer confidence data from ANZ and Roy Morgan is released. Confidence levels have risen for three out of the past four weeks. However it is clear that Aussie consumers are just feeling OK. The latest job figures are likely to be offset by the media discussion on the budget measures, with consumers wondering what the bank levy means for them.

On Wednesday, the Reserve Bank releases data on private sector credit (broadly, outstanding loans). Annual credit growth is holding near 5 per cent – essentially remaining near 3-year lows.

On Thursday, investors and traders will have a lot to focus on with a number of ‘top tier’ indicators scheduled for release. Arguably, the most important release from the ABS will be the March quarter estimates on business investment. This data is also an input into the calculation of economic growth. But also insightful are the estimates of planned investment for the coming year.

In the December quarter, investment fell by 2.7 per cent, but hopefully the improvement in the global economic outlook and lift in business conditions results in a rebound in investment. The Reserve Bank will be interested in estimates of non-mining investment.

In addition, the ABS will release the monthly retail trade data on Thursday. No doubt the latest figures will garner plenty of interest given the slowdown in retail activity in the past couple of months. The Commonwealth Bank Business Sales index indicated that sales were flat in trend terms over May. For the record we expect that retail sales rebounded by 0.4 per cent in seasonally adjusted terms in April.

Also on Thursday, CoreLogic releases its estimates of home prices for May, while the Australian Industry Group while release the Performance of Manufacturing index. By all accounts home prices are starting to show more sedate growth, given the tighter lending restrictions adopted by the banks. The CoreLogic daily home price index indicates that home prices have fallen by around 1 per cent in May.

On Friday the Housing Industry Association releases figures on new home sales.

Overseas: US jobs data pivotal to rate outlook

After a holiday weekend, a big slate of US economic data awaits investors on Tuesday. And gauges of manufacturing and services activity are due for release in China.

The week begins on Tuesday with US data on personal income and spending, consumer confidence and the CaseShiller measure of home prices. Both personal income and spending are expected to post firm 0.4 per cent gains for April. At the same time, data will probably show home prices rising at a near 6 per cent annual rate while consumer confidence may have eased further from 16-year highs due to increased political uncertainty.

In the US on Wednesday, the Federal Reserve releases the Beige Book – a summary of economic conditions across Federal Reserve districts. Fed policymakers regard the survey results as a valuable input to their rate setting decisions.

Also in the US on Wednesday the usual weekly data on mortgage applications is released together with data on pending home sales and the influential Chicago purchasing managers index.

In China on Wednesday, the National Bureau of Statistics will release the results of purchasing manager surveys covering both the manufacturing and services sectors. As is the case in the US, the services sector is in the strongest shape of the two sectors.

On Thursday the private sector Chinese Caixin survey of the manufacturing sector is released with the services sector survey on June 5.

On Thursday in the US the usual weekly data on claims for unemployment insurance is released together with the ISM manufacturing index, construction spending, the ADP National Employment index, new vehicle sales data and the Challenger job layoffs series.

And on Friday in the US, the pivotal employment report (Non-farm Payrolls) is released with international trade figures and the ISM-New York index. Economists expect that 183,000 jobs were created in May, down from 211,000 jobs in April. But analysts forecast a modest lift in the jobless rate to 4.5 per cent while earnings may have only lifted by 0.2 per cent. Overall these results could temper Federal Reserve policymakers from lifting rates again in June.

Financial markets

There has been more volatility over the last couple of weeks but it is important to keep in mind that most indices have recorded healthy growth over the first five months of the year. So far over 2017, the ASX 200 index has risen by around 1.7 per cent, while the Japanese market has risen by 2.6 per cent and the UK market is up 4.8 per cent. However, the clear outperformer have been the US market. The Dow Jones has risen by 6 per cent in 2017, while the broader S&P 500 is up by 7 per cent. The clear winner is the technology heavy NASDAQ which has gained a staggering 14 per cent.

Please note: This week’s report was written by Savanth Sebastian, Senior Economist.

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Investor Signposts: Reserve Bank to the rescue

Friday, May 19, 2017

By Craig James

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.

Financial markets 

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 until this week, 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 till 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 eight 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.

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Investor Signposts: Jobs data in focus

Friday, May 12, 2017

By Craig James

After the data deluge in Australia over the past fortnight, including a Reserve Bank Board meeting and the Federal Budget, the coming week continues in the same fashion. New figures on wage growth are released, alongside key employment data.

Across the globe, investors will focus on the Chinese economic data released on Monday. In the US, data on the housing market will garner the most interest. Also, inflation data will be released across the Eurozone, Canada and even New Zealand over the week.

In Australia, the week kicks off on Monday with the ABS release on housing finance. Despite the tighter lending standards adopted by the banking sector, it is likely that loans for owner-occupiers (those who want to live in the homes) rose by around 2.5 per cent in March after falling by 0.5 per cent in February. And the total value of all new loans may have risen by 1.1 per cent in the month

On Tuesday, investors will focus on the release of the minutes of the last Reserve Bank Board meeting. Board members were decidedly more optimistic at the May meeting compared with the prior meeting. Even the Statement of Monetary Policy - released last week - upgraded near-term growth forecasts. And it is likely that the minutes will convey a similar upbeat tone. Investors will have to wait until the June meeting to see the central bank view on the Federal Budget and recent weaker retail data on retail spending.

Also on Tuesday, the weekly consumer sentiment reading is released by Roy Morgan and ANZ.  The sentiment gauge will attract more than the usual attention given it will be the first reaction of Aussie consumers to the Federal Budget.

And the key economic data on Tuesday from the Bureau of Statistics (ABS) is the estimate of new vehicle sales for April. The industry data from the Federal Chamber of Automotive Industries has already indicated that auto sales fell by 5.1 per cent in April on a year ago, with the result affected by the timing of Easter holidays. The ABS measure should, in theory, remove the seasonality of the result.

On Wednesday, the ABS releases the March quarter data on wages as well as lending finance figures, while the monthly consumer sentiment survey is also released. Wages grew by 1.9 per cent over the past year to December. In the March quarter wages probably grew by 0.5 per cent, keeping annual growth near record lows. And while the annual growth rate is the lowest on record, it still remains marginally ahead underlying growth of consumer prices. The real wage gains alongside the low interest rate environment on record will serve to support consumer spending over the rest of 2017.

Arguably the highlight of the weekly finance diary occurs on Thursday when the ABS releases the job market data for April. Figures have been somewhat more upbeat in the last couple of months with the majority of the growth in full-time jobs. In fact over the past two months full-time jobs rose by over 110,000 – that is, if the data is to be believed.

For the record we expect that jobs growth was more sedate, with a flat result in April. But with slightly fewer people looking for work, the jobless rate may have eased from 5.9 per cent to 5.8 per cent. It should be noted that the recent lift in business confidence and conditions and strength in job vacancies bodes well for hiring in the second half of 2017.

Overseas: US housing sector; China economic data and home prices

So-called ‘top shelf’ economic indicators are released in China in the coming week. And in the US, the focus will be on the housing sector. Inflation data will on the agenda across the Eurozone, Canada and New Zealand. Also over the week, a number of Federal Reserve speakers are scheduled, including Bullard and Mester.

China will actually kick off proceedings over the week with the release of key ‘top shelf’ indicators on Monday, namely retail sales, production and investment. Annual growth rates are slowing, but that is ‘normal’ for a maturing economy. Also, lending and money supply data will be released between Tuesday and Sunday.

Also on Monday in the US, the Empire manufacturing gauge and the National Association of Home Builders (NAHB) index are both slated for release alongside capital flows figures.

On Tuesday, US industrial production and two key indicators of the housing sector will be released – housing starts and building permits. Annualised US housing starts are tipped to have lifted from a 1.22 million annual rate to 1.25 million in April. New building permits are expected to have edged higher by 0.4 per cent in the month. Industrial production is forecast to have risen by 0.4 per cent in April.

On Wednesday, the usual US weekly data on home purchase and refinancing is issued.

On Thursday in the US, the usual weekly data on claims for unemployment insurance is released together with the Philadelphia Federal Reserve business index and the leading index. The leading indicator index is forecast to lift by a further 0.4 per cent in April.

Also on Thursday, China releases data on property prices for April. There will be a lot of interest in the home price data given that authorities have attempted to use a variety of measures to cool a heated property market. The home price restrictions that have been implemented include restrictions on how many houses people can buy in some regions as well as measures requiring 60-80 per cent deposit for second-home buyers. So far the measures have yet to have a significant impact with China home prices up almost 12 per cent on a year ago.

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Investor Signposts: Federal Budget in focus

Friday, May 05, 2017

by Craig James

It generally only dominates attention for one day of the year, but the Federal Budget will be in focus in the coming week. But there are also plenty of ‘top shelf’ indicators to watch, including retail trade.

The week kicks off on Monday with the release of building approvals data from the Australian Bureau of Statistics (ABS) as well as the job advertisements data from ANZ. The approvals data – council approvals to build new homes – is volatile. But overall, it appears that the building cycle has peaked. In February new approvals rose by 8.3% and we expect that they eased 5% in March.

Job ads have followed a zig-zag course over the past four months, lifting 0.3% in the latest month of March. Business surveys suggest that hiring is starting to lift again.

On Tuesday, there is a raft of data during the day to be followed by the release of the Federal Budget at 7.30pm. The National Australia Bank business survey is released with weekly consumer confidence and retail trade.

In March, the NAB business conditions index rose from +9.3 points to +14.2 points (long-term average +5.0 points), a 9-year high. The business confidence index eased from +6.7 points to +6.1 points. The latest Performance of Manufacturing survey suggests businesses continue to do well.

Retail trade may have lifted by 0.3% in March after a 0.1% gain in February. Certainly, the Business Sales index from Commonwealth Bank pointed to an uptick in spending in the month. Consumers are generally cautious about spending with low nominal wage growth dominating focus rather than the modest growth of consumer prices.

The Federal Budget

The Federal Budget will get the usual attention from the media on Tuesday night and Wednesday. The key point being that budget announcements are just the start of a long process of securing agreement from the Senate. The global and domestic economies continue to improve and this will hopefully translate to firmer growth of revenues.

After the raft of economic events on Tuesday, there is then a gap to the next data offerings on Friday. The ABS releases the Overseas Arrivals and Departures publication that has information on both tourism and migration flows. And on the same day, the Reserve Bank releases the monthly credit and debit card statistics that include data on the use of automatic teller machines (ATMs)

Tourist arrivals rose by 0.4% in February. And departures fell by 2.3%. Arrivals are up 10.5% on the year with departures up 4.7%. Tourists from China and Hong Kong rose to a record 1,483,400 over the past year, up 13.5% over the year.

Consumers continue to cut back of credit card debt. In smoothed terms (12-month average) the average balance was down by 1.1% in February.

Overseas: US inflation; China trade and inflation

Overseas, inflation data will be released in both China and the US. Retail sales data will also of interest in the US. And in China, trade figures will attract attention.

The week begins on Monday with trade data (exports and imports) slated for release in China. And in the US, the employment trends index is issued.

On Tuesday in the US, a number of indicators are released that would be best described as “second tier”. The National Federation of Independent Businesses (NFIB) release the business optimism survey. Revised data on wholesale sales and inventories is also released. A forward-looking gauge on the job market is also scheduled – the JOLTS survey of job openings. And the usual weekly figures on chain store sales are issued.

In China on Wednesday, the April data on producer prices and consumer prices is released. Producer prices are up 7.6% on a year ago – just off the fastest rate in eight years. But consumer prices are only 0.9% higher than a year ago.

In the US on Wednesday, the usual weekly data on mortgage applications is released together with data on import and export prices and monthly figures for the Federal Budget.

On Thursday in the US data on producer prices is issued with the usual weekly data on claims for unemployment insurance.

And on Friday, the consumer price index is issued with retail sales and consumer sentiment. The core measure of prices (excludes food and energy) may have lifted 0.2% in April, leaving the annual rate at 2%. And just like in Australia, US consumers are spending only cautiously with non-auto (car) sales largely flat in March. Interestingly, the softness of spending stands in contrast to healthy consumer sentiment.

There are approximately five speeches by US Federal Reserve presidents over the week.

Financial markets

The Australian share market has generally done well during the month of May – not great, but not badly either. Over the past 70 years, the share market has lifted 46 times for an average monthly gain of 0.5%. The extra piece of good news is that the share market has lifted in May over the past three years.

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Investor Signposts: RBA in focus

Friday, April 28, 2017

By Craig James

The Reserve Bank and home prices dominate attention in Australia over the week. The Reserve Bank Board meets on Tuesday, Governor Philip Lowe delivers a speech on Thursday, and the Bank will release the latest economic growth and inflation forecasts on Friday.

The week kicks off on Monday, with the release of the CoreLogic measure of home prices as well as the Performance of Manufacturing index. Manufacturing is currently in good shape, while home prices continue to lift across most capital cities. Across the nation, home prices rose by a substantial 1.4 per cent in March, matching similar gains in February and December 2016. In fact, over the four months to March, home prices have accelerated by 4.9 per cent – the strongest four-month period in 18 months. But data currently points to only a modest 0.2 per cent rise in prices in April.

On Tuesday, data on consumer confidence is issued at 9.30am AEST. While the Reserve Bank hands down the rates decision at 2.30pm.

If the Reserve Bank was looking to move rates in any direction, it would certainly have the opportunity to do so on Tuesday given that it would be able to flesh out its reasoning in the Statement of Monetary Policy released on Friday. However, it is a safe to assume that the cash rate is unlikely to move. 

Firstly, the Reserve Bank is relatively comfortable about how the economy is evolving and secondly the Federal Budget is released on May 9. The Reserve Bank Board would want to see the latest fiscal policy measures. 

On Wednesday, the Federal Chamber of Automotive Industries releases industry data on new vehicle sales while the Performance of Services index is also expected.

On Thursday, the Reserve Bank Governor delivers a speech at the Economic Society (QLD) Business Lunch. And the Bureau of Statistics releases international trade figures (exports and imports) for March. In February, the trade surplus lifted from $1,503 million to $3,574 million, powered by a surge in exports. In fact annual growth of exports was the fastest in eight years with exports especially lifting to China, Hong Kong and India.

And on Friday, the Reserve Bank releases the quarterly Statement on Monetary Policy which includes the latest economic forecasts. Investors will focus on any commentary on the Australian dollar and the state of the housing market. In addition on Friday, the Housing Industry Association releases data on new home sales.

Overseas: US employment data and FOMC meeting to dominate headlines

It is a busy week in the US in terms of economic events. The US jobs data will garner the most interest given it is considered the most important of the monthly statistics. Also, the Federal Reserve meet to decide rates.

The week begins on Sunday when China’s National Bureau of Statistics releases the results of purchasing manager surveys for manufacturing and services. Australia and New Zealand will be the first markets to react to the data on Monday.

On Monday, the US version of the purchasing managers manufacturing survey is released together with data on construction spending. 

On Tuesday, the April data on new vehicle and truck sales is released together with the usual weekly figures on chain store sales. New vehicle sales are expected to have lifted by 4 per cent to a 17.2 million annual rate in April.

In China on Tuesday, the private sector Caixin manufacturing survey is released with the equivalent services gauge to be issued on Wednesday.

On Tuesday, the US Federal Reserve begins a two-day meeting (decision 4am in Sydney on Thursday morning). If there was any doubt about the likelihood of a rate hike, it was resolved with the weak jobs data for March. In short, the Fed should do nothing on rates this month. But updated economic forecasts may provide some guidance on the timing of future rate changes.

On Wednesday, the usual weekly data on mortgage applications is released together with purchasing manager surveys for services, and the ADP national employment index of private-sector jobs. 

On Thursday, factory orders, the trade balance and the final reading on durable goods orders for March are released. For the record, factory orders are expected to lift by 0.4 per cent, while a trade deficit of $44.4 billion is expected for March.

Also on Thursday, the usual weekly data on claims for unemployment insurance is issued together with the Challenger job layoffs series. 

On Friday, the US jobs report – non-farm payrolls – is released. And the focus will be on all the key measures – job growth, unemployment and wages. If jobs rise by 193,000 in April as expected with hourly earnings up 0.3 per cent, then the Federal Reserve should remain on track to lift interest rates twice in the second half of the year. Consumer credit data is also released on Friday.

There will also be five speeches by US Federal Reserve officials to watch on Friday.

Financial markets

  • The US profit reporting (earnings) season remains in full swing in the coming week. 
  • Among stocks reporting on Monday are Ferrari and Tenneco.
  • On Tuesday, reporting firms include Apple, Archer Daniels, BP, ConocoPhillips, Gilead Sciences, Merck & Co, MasterCard, and Pfizer.
  • On Wednesday, profit results include those from Carlyle Group, Facebook, Fitbit, Garmin, Groupon, Tesla, Time Warner, Transocean, and Yum! Brands.
  • On Thursday, earnings will come from Alibaba, Peabody Energy, Paramount Group, and Zynga.
  • And on Friday, financial updates will come from Berkshire Hathaway, and Cognisant.

Please note: This week’s report was written by Savanth Sebastian, Senior Economist.

This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, AFSL 238814 (CommSec) a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124, AFSL 234945 (the Bank). The Bank and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report. This report is not a recommendation to buy, sell or hold any securities, property, real estate or financial products, and has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual's objectives, financial or taxation situation and needs and, if necessary, seek appropriate professional advice. Past performance is not a reliable indicator of future performance. This report is produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this correspondence is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither the Bank nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report.

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Investor Signposts: Inflation week

Friday, April 21, 2017

By Craig James

Inflation dominates the coming week’s schedule of economic statistics. Meanwhile, in the US, there is a raft of data released, including home prices and economic growth.

The week begins in Australia on Monday with the release of the quarterly State of the States report from CommSec. The report analyses the relative economic performance of state and territory economies.

On Wednesday in Australia, the Australian Bureau of Statistics releases the quarterly Consumer Price Index (CPI) – the main measure of inflation used in Australia. In fact, the CPI is regarded globally as one of the best measures of price movements or inflation.

And for the first time in 2½ years, the annual headline rate of inflation is expected to be back in the Reserve Bank’s 2-3% target zone. We expect that prices rose by around 0.6% in the March quarter, lifting the annual rate of inflation from 1.5% to 2.3%.

One of the biggest drivers of the result is likely to be petrol, up around 6% and adding almost 0.2 percentage points to the quarterly lift in the CPI. Seasonal increases in education fees and pharmaceuticals are offset by seasonal declines in holiday travel and accommodation, alcohol and tobacco and clothing.

Stripping out the volatile elements, the “underlying” CPI is expected to lift by around 0.5% in the quarter and 1.8% over the year – getting closer to the 2-3% band. The results for the CPI probably won’t have any direct impact on interest rates. But, higher-than-expected readings could cause some analysts to bring forward expectations of rate hikes from 2018.

The weekly consumer sentiment reading is expected to be released on the same day (on Tuesday). Confidence at the moment is merely OK.

On Thursday, the ABS will release the international trade price data (data on export and import prices). Export prices are tipped to have lifted 3% in the quarter and import prices may have lifted 0.5%. Gold, base metals, wool and wheat prices rose in the quarter, while the Aussie dollar rose by 5.6%.

Also on Thursday, the Reserve Bank Governor Philip Lowe delivers a speech at the Renminbi Global Cities Dialogue Dinner. Governor Lowe will have his first chance to comment on the inflation data.

On Friday, the ABS releases the Producer Price Indexes for the March quarter, while the Reserve Bank releases data on private sector credit or loans outstanding. Credit may have lifted 0.4% in March.

Overseas: US economic growth and housing data

US economic data dominates in the week ahead. The next Chinese data is released on April 30 (Sunday). The first round of the French Presidential election is held on Sunday (April 23).

On Monday, the week kicks off in the US, with the national activity index and Dallas Federal Reserve manufacturing index.

On Tuesday, both the FHFA and Case Shiller measures of home prices are issued in the US. Annual growth of home prices stands at 5.7%. The April consumer confidence data is also released with new home sales, the Richmond, Texas and Dallas Federal Reserve survey indicators and weekly data on chain store sales.

On Wednesday, the usual US weekly data on home purchase and refinancing is issued with revised figures on building permits.

On Thursday in the US, the usual weekly data on claims for unemployment insurance is released together with durable goods orders (measure of business investment), pending home sales, advance data on international trade and inventories and the Kansas City Federal Reserve survey.

On Friday, investors will get the first look at economic growth data for the March quarter. There are three estimates of GDP – advance, preliminary and final estimates. On the same day, the quarterly employment cost index is issued – a key gauge of wages (or compensation). When wages start lifting at a faster rate, interest rates won’t be far behind. The next Federal Reserve meeting is May 2-3.

Also on Friday is the Chicago purchasing managers index and the consumer sentiment measure from the University of Michigan.

Financial markets

The US profit reporting (earnings) season is in full swing in the coming week.

Among the stocks reporting on Monday are Halliburton, Kimberly-Clark, Alcoa, Barrick Gold and Newmont Mining.

On Tuesday, reporting firms include 3M, Baker Hughes, Caterpillar, Coca Cola, DuPont, Eli Lilly, Lockheed Martin, McDonald’s, Office Depot, AT&T and US Steel.

On Wednesday, profit results include those from Fiat Chrysler, PepsiCo, Twitter, T-Mobile and Procter & Gamble.

On Thursday, earnings will come from American Airlines, Domino’s Pizza, Ford Motor, UPS, Under Amour, Amazon, Microsoft, Intel and ResMed.

And on Friday, financial updates will come from Chevron, Colgate Palmolive, Exxon Mobil and General Motors.

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