By Craig James

Spring tsunami

The week kicks off on Monday with a raft of indicators. The Housing Industry Association releases new home sales at a time when developers are indicating that home building is near its peaks. The Australian Bureau of Statistics (ABS) releases the Business Indicators publication covering profits, sales, stocks and wages. The Reserve Bank releases private sector credit data (effectively, outstanding loans). And TD Securities and Melbourne Institute release their monthly gauge of inflation.

The Reserve Bank Board meets to decide interest rate settings on Tuesday. But barring a complete surprise, no change in rate settings is likely. The statement accompanying the decision could be short, although there is scope for a few words on the sharemarket volatility.

On Tuesday, the ABS releases data on building approvals, government finance and the balance of payments. CoreLogic RP Data releases the August home value index. Home building approvals probably rose by 1% in July while home prices may have lifted 0.7% in August.

Also on Tuesday the usual weekly consumer confidence survey is issued by ANZ and Roy Morgan.

On Wednesday, the ABS issues the quarterly economic growth estimates in the National Accounts publication. At this early stage we are tipping growth of between 0.4-0.6% in the quarter and growth of 2.2-2.4% for the year. Growth is seemingly below “normal”. But that assessment of “normal” is being reconsidered.

On Thursday, the ABS releases data on retail spending as well the trade (exports and imports) data for July. We expect a modest 0.3% lift in retail spending. But the trade deficit probably remained significant near $3.6 billion. Higher imports actually suggest a healthy economy – more spending.

And on Friday, the ABS releases the July publication of Overseas Arrivals and Departures. The publication includes tourist movements as well as migration flows. China is getting closer to overtaking New Zealand as our largest source of tourists.

Employment data in focus in the US

The week kicks off in the US on Monday with the release of the influential Chicago purchasing managers index.

On Tuesday, the ISM manufacturing index is released in the US. A reading of 53 is tipped – above the 50 line that separates contraction from expansion. Data on construction work is also issued with the monthly figures on new auto sales. The usual weekly chain store sales figures are also released.

In China, the “official” purchasing manager indexes are released on Tuesday. That is, the National Bureau of Statistics will release the surveys covering both manufacturing and services sectors. The surveys are more reliable than the private sector surveys and the survey sample is much larger.

On Wednesday, the ADP series of private sector payrolls is issued – the precursor to Friday’s official job data. Economists expect job growth of around 205,000 in the month. Revised data on labour costs and productivity is also released on Wednesday together with estimates of factory orders. The weekly reading of housing finance is also issued on Wednesday.

On Thursday new estimates on international trade (exports and imports) are issued for July. The trade deficit may have widened from US$39.8 billion to US$42 billion in the month. The ISM services index for August is also released on Thursday together with the Challenger series on job layoffs. The regular weekly data on claims for unemployment insurance is also issued.

And on Friday, the highlight of the week arrives. The August jobs market data is released with most focus on employment – the non-farm payrolls series. The job market has improved markedly over time with job growth now consistently above 200,000 every month. And the jobless rate stands at 5.3%. Economists tip job growth of 215,000 for August and unemployment at 5.2%.

The jobs data is pivotal to the debate on when the Federal Reserve starts the rates “normalisation” process. That is, the time when the Fed lifts rates from zero. But for the Fed to be confident about lifting rates in September, members don’t just want to see job growth and lower unemployment but also evidence of inflation in the form of rising wages.

Sharemarket, interest rates, currencies and commodities
When investors are selling off assets across the globe, they don’t tend to differentiate much. Chinese shares were well over-priced on traditional price-earnings calculation. They still are. And both US and European markets were also 15-20% over-valued – ripe for picking if enough in the way of “bad” news comes around. As it does. Before the recent global sell-off the forward PE ratio in Australia had lifted to 16.6, about 10% above the long-term average near 15.