By Craig James

Business and consumer sentiment dominates domestic calendar

In Australia, the week kicks off on Monday with job advertisements, tourist arrivals & departures and the Performance of Construction index. To some degree the job advertisement figures have lost some of its linkages as a leading indicator of employment. There have been encouraging signs with a sustainable lift in business hiring intentions. Jobs ads are up over 10 per cent on a year ago and are holding at the highest levels since July 2012.

On Tuesday the National Australia Bank business survey for February is issued together with the ANZ/Roy Morgan weekly consumer sentiment survey. Business confidence lifted in January however conditions fell to an 11-month low, driven by the volatility in global markets. More interest will be paid to the subindices – trading conditions, profitability, exports and forward orders. On the basis of improved global economic data and higher domestic share and home prices, there are good reasons to expect that confidence improved again in January.

Also on Tuesday, Reserve Bank Deputy Governor, Philip Lowe, delivers a speech at the Urban Development Institute of Australia's (UDIA) National Industry Congress, Adelaide.

On Wednesday Westpac and the Melbourne Institute release the March consumer sentiment index data. Main interest is on where consumers believe is the best place to put new savings.

Also on Wednesday the Australian Bureau Statistics will be releasing housing finance data for January. There has certainly been a pullback in terms of investor finance however home buyers are still looking for their dream home with loans to owner-occupiers nearing 7-year highs in December. In addition refinancing is up 20 per cent on a year ago and holding at record highs. According to data from the Australian Bankers Association (ABA) we expect that the value of loans fell by 2 per cent in January, while the value of lending is expected to have fallen by 1 per cent.

On Friday the ABS issues the latest lending figures – the most comprehensive figures on lending in the economy including housing, personal, commercial and lease loans. Businesses are gradually borrowing more.

China dominates global data

There are scant offerings of ‘top shelf’ US economic data releases in the coming week. In contrast there is plenty of key economic data to watch in China.

The week kicks off on Monday in the US with the employment trends report and consumer credit data. Analysts expect consumer credit to have lifted by around $19 billion. Federal Reserve vice-chair Stanley Fischer also delivers a speech – the last major speech by a Fed member ahead of the March 15-16 rates decision.

On Tuesday, the National Federation of Independent Business (NFIB) issues its small business optimism index while the usual weekly data on chain store sales is released.

In China, trade data is issued on Tuesday. While both exports and imports are down on a year ago, most focus is on imports as a measure of domestic spending. The trade surplus is at record highs.

On Wednesday in the US, data on wholesale sales and inventories are issued with little change in both indicators expected. Sales fell 0.3 per cent in December and are tipped to lift only 0.1 per cent in January. The weekly data on housing finance is also issued.

On Thursday in the US the monthly budget data and the usual weekly data on claims for unemployment insurance are issued. In China, the focus is on the February data on consumer and producer prices. Producer prices are still in decline, down 5.3 per cent over the year. And consumer prices are rising at a modest 1.8 per cent annual rate. Further tame inflation readings would leave the door open to more stimulatory measures.

On Saturday the monthly batch of Chinese economic indicators are released – retail sales, production and investment. Chinese economic activity is decidedly mixed. Production and investment growth are slowing while retail sales growth is firm. Expect annual retail sales growth near 10.7 per cent, with production near 6 per cent and investment near 8.5 per cent. The risk is that the results print on the weaker side of expectations over the next couple of months – especially given that a lot of business would have closed for Chinese New Year celebrations earlier in the month.

Sharemarket, interest rates, currencies & commodities

Each quarter the Reserve Bank releases its estimates of the currency in ‘real’ or inflation-adjusted terms. This data assists the Reserve Bank in determining whether the currency is at the ‘right’ levels.

The Reserve Bank produces a trade-weighted index as well as import-weighted and export-weighted indexes with each adjusted for relative consumer price levels.

In the December quarter, the real TWI was up just 0.3 per cent from the 6-year low set in the September quarter. You would expect that the real TWI tracks the terms of trade (ratio of export prices to import prices) over time and indeed that has been the case. The real TWI has lost 20 per cent from the 39-year high set in March 2013.

The performance of the real TWI best describes why the Reserve Bank is comfortable with where the Aussie dollar currently stands.