Upcoming economic and financial market events

Australia

22 June

  • Car Sales (May): We expect that car sales were up five per cent seasonally adjusted.

26 June

  • Financial accounts (March quarter): Reveals data on financial wealth and business balance sheets.

Overseas

23 June

  • US Existing home sales (May): There is just over 10 months supply of stock.

24 June

  • US Durable good orders (May): Orders appear to be stabilising
  • US New home sales (May): Sales have found a base near 350,000
  • US Federal Open Market Committee: No change in monetary policy settings is expected.

25 June

  • US GDP (March quarter final): The US economy contracted around 1.4 per cent (5.7 per cent annualised).

26 June

  • US Personal income (May): Real spending is broadly flat.

The big picture

When it comes to thinking about exports and imports, most focus is on physical goods. But new data on services (tourism, etc.) provides a more complete picture on Australia’s external trade. Not only has China’s importance to Australia again been emphasised, but also the data highlights the growing significance of India.

The latest figures show that not only is China/Hong Kong Australia’s largest trading partner in physical goods, it also dominates top spot when services trade (such as tourism and education) is included. In total two-way trade of goods and services, China/Hong Kong is in top spot with $81.7 billion, accounting for almost 15 per cent of the total, ahead of Japan with $76 billion and the US with $54.7 billion. Just five years ago the US was in top spot, ahead of Japan and China. The fall in importance of the US is just as remarkable as the ascendancy of China.

The latest data shows that China/Hong Kong passed the US for the first time in 2008 to take top spot in income from services trade (services credits). In the past five years, services income from China/Hong Kong has risen a massive 82 per cent. From China alone, services income has soared by 148 per cent.

In comparison, Australia’s outlay on services from China/Hong Kong is more modest. While Australia received services revenue (credits) of $6.4 billion from China/Hong Hong in 2008, services debits were only $3.3 billion. In terms of services debits, China/Hong Kong ranks fourth behind the US, Singapore and the UK. But more Australians can be expected to travel to Mainland China in coming years, pushing China/Hong Kong up the leader-board.

India has also raced up the leader-board of services income as it has in terms of exports. India is now the sixth largest source of services income with revenue in 2008 of $3 billion. Not only has it moved up from 13th spot in 2003 but also revenue is five times higher. In terms of total export revenue, India accounts for 6.0 per cent of the total, up from 2.7 per cent five years ago.

In exports of goods alone, China/Hong Kong is in second spot with income of $35.4 billion, behind Japan with $50.8 billion but almost three times that of the US. Over the past five years, exports of goods to China/Hong Kong have almost tripled. And while that seems staggering, even more significant has been the quadrupling of exports to India – now the fourth largest export destination.

In terms of imports of goods, China/Hong Kong swamps other centres with $36.7 billion in outlays in 2008, ahead of the US with $26.7 billion and Japan with $20.2 billion. More than one dollar in every three of imported goods comes from one of these countries.

China and Japan currently dominate Australia’s exports. But coming up fast is India alongside Korea. In contrast, the US and UK continue to slip away as Australia focuses its attention on Asia.

The week ahead

The domestic economic cupboard is all but bare. The only indicators of note in the coming week are car sales (Monday) and the financial accounts (Friday).

The recent spate of economic news has been overwhelmingly positive. And that trend looks set to continue with the May car sales data. Industry figures show that 75,441 cars were sold in May, down 15 per cent on a year ago. While it looks like a big drop it has to be noted that April sales were down 24 per cent. So on our calculations we believe that sales rose in the month in seasonally adjusted terms by around five per cent.

While private buying activity is still quiet, car sales to businesses are lifting in response to the government grants to small- and medium-sized businesses. The other factor supporting car sales is affordability. We calculate that car affordability is the best in at least 20 years.

Apart from car sales, the other indicator to watch is the quarterly financial accounts on Friday. Included in this data are estimates of household financial wealth, the state of company balance sheets and flows in and out of financial markets.

In the US, the spotlight remains on the housing sector. On Tuesday figures on existing home sales are released while data on new home sales is released the following day. Most readings suggest that home sales and construction have bottomed. The major uncertainty is when recovery will start in earnest and how quick it is likely to be. At present there is just over 10 months worth of existing homes on the market with an equivalent level of new homes. So it will take time for the substantial oversupply to be adjusted – even if banks continue to bulldoze homes.

Of the other indicators, data on durable good orders is issued on Tuesday with the Federal Reserve meeting to decide rate settings on Wednesday with economic growth estimates on Thursday and personal income and spending data on Friday.

The Federal Reserve won’t be touching interest rates, but its views on economic conditions and forecasts will be closely watched. The final GDP or economic growth estimates for the March quarter won’t dramatically change. The US economy shrunk by 1.4 per cent (5.7 per cent annualised) in the quarter and most economists expect a return to growth in the second half of the year.

Sharemarket

We are fast approaching that time when ‘league table’ performance figures are produced. But while the final figures aren’t known, we certainly in a position to highlight the major winners and losers so far.

On global sharemarkets, Peru has recorded the strongest gains in the first six months of the year, up 91 per cent, followed by Russia (up 70 per cent). Interestingly the BRIC nations – Brazil, Russia, India and China – fill spots in the top 11. At the other end of the scale is Ghana (down 40 per cent), followed by West Africa and Kenya. Australia is in 45th spot of the 72 sharemarkets.

For the 2008/09 year in top spot is Vietnam (up 24 per cent) with only seven countries higher over the period. Australia is in 37th spot of 72 sharemarkets with its decline of around 25 per cent close to the average.

On the Australian sharemarket, nine of the 20 sharemarket sectors have fallen over 2009. Strongest sector has been retailing, up 33 per cent, followed by materials and diversified financials. However when viewed over 2008/09 the news is more negative. Only two sectors are higher over the year – the defensive sectors, health care (up nine per cent) and food, beverages (up five per cent).

Interest rates

The Economist magazine has a very useful table showing interest rates across the world. Continuing the ‘league table’ theme we have used elsewhere on this page, it is interesting to see where Australia stands on short-term rates. Of the 58 countries covered, Australia has the 23rd highest three-month rate. Not only is Australia’s 3.25 per cent the highest of developed nations it is well above the next closest - Denmark and South Korea at 2.4 per cent.

Currencies & commodities

Major currencies have recorded mixed performances against the greenback over 2009 so far. While 33 currencies have strengthened, 30 are unchanged against the US dollar on the start of the year while 57 have weakened. The strongest currency is the Brazilian real (up 16 per cent) followed by South Africa (up 14 per cent). Australia is sixth strongest of 120 currencies, up 13 per cent. Commodity-dependent currencies dominate the top half of the leader-board. At the other end of the scale is the Fijian dollar, down 18 per cent, courtesy of the 20 per cent devaluation in mid April.

In terms of commodities, the CRB futures index is up almost 12 per cent over 2009. One of the strongest gainers has been copper, up 63 per cent in US dollar terms, with lead up 60 per cent and oil up 58 per cent. Agricultural commodities have been more mixed with sugar up 26 per cent, wool up one per cent (in Australian dollar terms) but wheat prices are down seven per cent.