By Craig James

Inflation takes centre stage

The domestic economic data is limited in a holiday shortened week. In Australia inflation will dominate the calendar, particularly in light of the upcoming Reserve Bank Board meeting. A super low inflation result could be the trigger for another rate cut. In the US the data focus will be on the home prices and economic growth. While for investors and traders the focus will be centred on the Federal Reserve policy meeting (on Wednesday).

On Wednesday inflation data will be in focus, when the Consumer Price Index for the March quarter is released. The “official” inflation data only comes around once a quarter in Australia. There is private sector monthly survey on inflation from Melbourne Institute but the Australian Bureau of Statistics only publishes its inflation measures once a quarter.

The monthly inflation gauge suggests inflation should remain relatively tame over the quarter. The CBA Group is tipping a modest result. A lift of just 0.3 per cent is expected over the quarter with annual inflation to lift from 1.7 per cent to 1.8 per cent.

Over the quarter, the price of petrol plunged by 13 per cent and that alone should keep inflation curtailed. More importantly, investors will need to focus on the “underlying” measures that exclude petrol as well as the non-tradable price measures that focus on domestic price pressures.

We expect that underlying inflation grew 0.6 per cent in the March quarter and around 2 per cent over the year. A mild result such ensure that the Reserve Bank sticks to its easing bias, however a significantly lower inflation result would be needed to trigger a May rate cut.

Also on Wednesday the weekly consumer sentiment reading will be released alongside the Victorian State Budget. Consumer confidence rose 3.4 per cent last week in response to lower unemployment, a stronger sharemarket and higher Aussie dollar.

On Thursday the Australian Bureau of Statistics (ABS) will issue data on export and import prices for the March quarter.

And on Friday, the ABS releases the producer price indexes – key measures of business inflation. It will be important to see what impact the volatile Aussie dollar has had on prices of imported goods across the docks.

On the same day the Reserve Bank releases the “Financial Aggregates” report for March, which includes money supply measures and private sector credit (loans outstanding). We expect that credit rose by around 0.5 per cent in March to be up just over 6 per cent over the year.

In addition the Reserve Bank Assistant Governor Guy Debelle will deliver a speech at the ACI World Congress Conference, in Singapore (1:45pm AEST). A title for the speech has not been released, but the focus is likely to be on the subsequent Q&A session which is open to the media. The Assistant Governor will get questioned on his views on the Australian dollar but more importantly his views on the inflation result earlier in the week.

Big week for overseas economic events

While the focus is primarily on inflation in Australia, a broader array of events is scheduled in the US. Not only does the Federal Reserve policymaking committee meet but ‘top shelf’ economic data will be issued.

The week begins on Monday when data on new home sales is released. Housing activity has remained healthy and new home sales are expected to have lifted by 2.5 per cent after a 2 per cent rise in February.

Also on Monday the Dallas Federal Reserve releases a business index on the manufacturing sector.

Over Tuesday and Wednesday, the Federal Reserve Open Market Committee meets to decide monetary policy settings. The guessing game on when the Fed will next lift rates won’t be resolved. However the text of the decision will be important in determining whether the Fed is on course to lift rates mid-year or whether it is likely to be delayed again.

Also on Tuesday data on consumer confidence is released together with the CaseShiller measure of home prices, influential Richmond Federal Reserve index, durable goods orders and the Markit organisation releases a “flash” (or early-warning) gauge for the services sector. Annual growth of home prices may have edged up to 5.8 per cent while consumer confidence may ease modestly. A further expansion in the services sector is expected. The preliminary data on durable goods orders will be closely watched as it provides some colour to the level of business investment. Orders are expected to have rebounded by 1.6 per cent in March after the 3 per cent slide in the prior month.

On Wednesday, pending home sales data is issued alongside the weekly data on mortgage applications.

On Thursday, the first reading (“advance” measure) of economic growth in the March quarter will be issued. Economists expect that gross domestic product (GDP) grew at an annualised rate of just 0.5 per cent in the March quarter, down from 1.4 per cent in the December quarter. But rather than signalling a slowdown, the data highlights the influence of harsh winter weather in constraining growth in the economy. The usual weekly data on claims for unemployment insurance is also issued on Thursday.

On Friday, data on personal income and spending are released in the US as well as the employment cost index, Chicago purchasing managers index and the University of Michigan Sentiment Index. Income is tipped to have lifted 0.3 per cent with spending up 0.2 per cent. And the employment cost index will be important in guiding views about when the Federal Reserve will next hike rates. No wage pressure – no rush to lift rates.

Sharemarket, interest rates, currencies & commodities

The US earnings season cranks shifts into fourth gear in the coming week. A total of 957 companies will be issuing earnings results.

On Monday, 85 stocks are expected to report including Apple, Halliburton, and Xerox. On Tuesday there are another 222 companies listed including Barrick Gold, AT&T, Resmed and Proctor & Gamble. On Wednesday earnings results are expected from 248 companies including Boeing, Facebook, and Nasdaq. On Thursday 340 companies should issue profit results including ConocoPhillips, LinkedIn, and Domino’s Pizza. And on Friday there are 62 companies listed including Exxon Mobile and Chevron.