By Craig James

On Monday car sales, the monthly inflation gauge and job advertisement figures are released. Inflation is well contained and the job market is picking up.

On Tuesday the Reserve Bank Board meets and it is a safe bet that interest rates will be left unchanged for a 5th month (6 months of rates at 2%).

However the accompanying statement is likely to be somewhat different from the September decision. Over the past month some domestic and global economic conditions have shifted – particularly when it comes to commodity prices and the Aussie dollar. But we don’t believe that the Reserve Bank will change its interest rate stability rhetoric – at least not this year.

The Bureau of Statistics (ABS) releases statistics on tourist arrivals and departures on Tuesday together with longer-run migration data and international trade data. ANZ and Roy Morgan release the weekly consumer confidence rating.

The trade data – while important – has lost relevance for investors. So the main focus will be on consumer sentiment survey. In the past fortnight consumer confidence has surged by 8.7% (the biggest weekly gain in the history of the survey) before falling by 3.4% last week. The next few weeks will be more telling on whether the recent positivity is sustained. No doubt the future performance and direction of the new administration will be key. The hope would be that the increased confidence is certainly a positive for the Australian economy – translating into increased spending, investment and employment.

On Wednesday, the Housing Industry Association releases figures on new home sales – a useful indicator on the state of home building.

And on Friday, housing finance data is released. Data from the Bankers Association suggests that the number of owner-occupier loans rose by 5% in August while the value of all loans rose 6%. Clearly the focus will remain on the strength of investor loans compared with owner-occupiers. Overall the demand for homes is strong, but with dwelling approvals at record highs, supply is lifting to meet the higher demand.

Overseas


On Monday the ISM non-manufacturing survey is released. The services sector has been expanding at a healthy rate and the trend should continue with a reading of 58.0 tipped for September.

On Tuesday, the usual weekly chain store sales data is released in the US together with monthly trade data and IBD Economic Optimism index.

On Wednesday the weekly report on mortgage transactions – purchases and refinancing – is released alongside consumer credit data for the month of August. Economists tip consumer credit to have lifted by $18 billion.
On Thursday, weekly data on claims for unemployment insurance is issued together with minutes of the last Federal Reserve policymaking committee meeting (FOMC). Investors hope that the minutes can provide some broad hints on the likelihood of a rate hike later this year.

On Friday wholesale sales/inventories figures and data on import and export prices is released.

Share markets, interest rates, commodities and currencies

In light of recent developments, CommSec is revising down its forecasts for the ASX 200 and All Ordinaries indexes. We now expect the key share indexes to be between 5,450-5,600 points by end year and 5,600-5,800 points by mid-2016.

Certainly the broader Australian share market is well supported by solid fundamentals - strong company balance sheets and “OK” earnings. And valuations suggest fair value with the one-year forward price-earnings ratio falling from a high of 17.6 in late April to currently hold at 14.8 (in line with the decade average).

But a weaker Australian dollar has recently prompted some overseas investors to book profits. An easing in Chinese growth and weaker commodity prices have also weighed on investor sentiment more generally. It is probably fair to say that domestic and foreign investors have also been more attracted to the local housing market rather than the share market over the past year.

Looking ahead, the Australian economy is expected to lift over the coming year, underpinned by low interest rates and record home construction. The lower Aussie dollar will also provide a boost for local businesses. Further, the Chinese economy should continue to expand by 6.0-7.0%, with solid volume growth expected for commodities. And the US economy continues to heal, with the Federal Reserve inching closer to lifting interest rates.

Investors should also remain attracted to yields on offer across the share market, especially in relation to low domestic interest rates and prospects of slower home prices and a softening of rental yields.