by Craig James

To say that it’s been a “choppy” start to the New Year borders on understatement. Commodity prices eased, and then rebounded. The Aussie dollar has broadly held in a range from US87 cents to US90.50 cents, but it currently seems to have settled towards the lower end of the range. And global sharemarkets have generally softened in the first few weeks of the year. To some extent this is to be expected following solid gains recorded in 2013. But the softer tone on equities markets also reflects some uncertainty about where economies are headed.

Certainly the “tapering” of US monetary policy stimulus was expected to be a big theme in 2014 and this has proven to be the case. Overall it is clearly positive that US policymakers believe the economy can now be weaned off monetary stimulus. But there will always be the worry warts that will see the glass as “half empty”, worrying about issues such the implications for emerging nations as investment funds start flowing back to the US.

Clearly there will always be teething issues as advanced economies unwind stimulus and eventually start lifting rates to non-crisis period “normal” levels. It will be important for investors to be balanced in their assessments as the march to “normality” continues over 2014.

The week ahead

There is a raft of key economic events in Australia over the coming week including the latest interest rate decision and quarterly review from the Reserve Bank. In China, key gauges on the manufacturing and services sectors are issued. And in the US, the main highlight is employment data on Friday.

In Australia, the week kicks off on Monday with the release of the RP Data/Rismark Home Value index and the monthly inflation gauge from TD Securities and the Melbourne Institute. Home prices continue to rise while the low point for inflation may now have passed.

Also on Monday, ANZ releases data on job advertisements while the Bureau of Statistics (ABS) issues the December data on building approvals. 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 the data on job ads is less instructive.

The figures on building approvals are more volatile, and while approvals have fallen in the past two months, the number of approvals remains well above “normal” or decade-average levels.

On Tuesday the Reserve Bank Board meets for the first time in 2014. While rates won’t be shifting in either direction, of interest is whether the Board adopts a more neutral monetary policy stance following the recent higher-than-expected inflation reading.

On Thursday the ABS releases both the December international trade data (exports and imports) and retail trade or sales figures. The trade deficit narrowed to an eight-month low in November but the data has far less relevance for financial markets than in the past. Of more interest is the data showing the trading relationship with China.

One of the more notable developments in recent months has been the pickup in consumer spending. Retail trade has now risen for seven straight months and no doubt has been a key influence boosting broader business conditions. Retail trade probably rose by 0.8 per cent in December and by 1.0 per cent in the quarter.

And on Friday the Reserve Bank releases its quarterly Statement on Monetary Policy. In the November statement the Reserve Bank was comfortable about the inflation outlook. The key question is whether it remains as comfortable after the December quarter inflation figures and recent batch of firmer economic data.

Turning attention overseas, the week kicks off on Saturday when China’s National Bureau of Statistics (NBS) releases the manufacturing purchasing managers’ index (PMI) for January. The NBS survey is more comprehensive that the rival HSBC variant so will provide a better sense of economic conditions.

On Monday the NBS will release the results of the equivalent PMI for the services sector.

Also on Monday, PMIs will be released in other countries including the US and major European economies. In the US, economists expect a modest softening in the ISM manufacturing survey from 56.5.0 to 56.0 in January – still well above the 50.0 level that defines expansion in the sector.

In the US on Monday data on construction spending and vehicle sales are also issued.

On Tuesday, the usual weekly data on chain store sales is released together with factory orders while the ISM survey of New York is also issued.

On Wednesday the ISM services index for January is expected with a solid reading of 53.8 expected. The usual weekly data on home purchase and refinancing is issued while ADP issues its January report on private sector employment. The ADP survey is regarded as a good guide on the “official” non-farm payrolls report, although this certainly wasn’t the case with the December data.

On Thursday, the regular US weekly data on new claims for unemployment insurance (jobless claims) is issued together with quarterly productivity and labour cost data and monthly international trade figures. Economists expect that the trade deficit widened from US$34.25 billion to US$35.9 billion in December.

And on Friday, the highlight of the week’s data releases is issued – the non-farm payrolls or employment figures. The December data disappointed with only 74,000 jobs created. Economists tip a far stronger outcome in January with job growth of around 175,000 expected.
Sharemarket, interest rates, currencies & commodities

The US reporting season winds down over the coming week while the Australian earnings season starts to crank up. The problem in Australia is that it is difficult to accurately determine when companies are reporting. In the US there is an “official” earnings calendar of sorts – at least it is a reliable source of earnings announcements. In Australia, there is no “official” calendar, in part because many companies are tentative about reporting dates and make changes with little notice.

But as far as we can ascertain, earnings announcements are expect from Devine, JB Hi-Fi and SML Corp on Monday. On Tuesday, Colorpak, Downer EDI and REA Group are expected to report. On Wednesday, Challenger Diversified and Echo Entertainment amongst those to issue results. Tabcorp is amongst those to report on Thursday with Aquarius Platinum slated to issue its results on Friday.

Upcoming economic and financial market events

Australia

  • February 2 - RP Data/Rismark Home Value index - Prices may have lifted by around 0.8% in January
  • February 3 - TD Securities inflation gauge (January) - Provides accurate monthly readings on inflation
  • February 3 - Building approvals (December) - Approvals were probably little-changed in December
  • February 3 - ANZ Job advertisements (January) - Gauge of hiring intentions
  • February 4 - Reserve Bank Board meeting - RBA could modify its easing bias
  • February 6 - International trade (December) - A trade deficit near $350 million is expected
  • February 6 - Retail trade (December) - We tip a 0.8% rise in sales for the month and 1% lift for the quarter
  • February 7 - Statement on Monetary Policy - Quarterly report with inflation & economic growth forecasts

 
Overseas

  • February 1 - China PMI manufacturing (January) - Stood at 51.0 in December
  • February 3 - US ISM manufacturing (January) - The key index is tipped to fall from 56.5 to 56.0
  • February 3 - China PMI services (January) - Stood at 54.6 in December
  • February 3 - US Construction spending (December) - A 0.5% lift in spending is expected
  • February 5 - US ADP employment (January) - Was far stronger than the Government report in December
  • February 5 - US ISM services (January) - Expected to have lifted from 53.0 to 53.8
  • February 6 - US International trade (December) - The trade deficit may have expanded to US$35.9 billion
  • February 7 - US Non-farm payrolls (January) - A 175,000 increase in jobs is tipped