By Craig James

In Australia, the week kicks off on Tuesday when ANZ and Roy Morgan releases the weekly consumer confidence rating. Last week the weekly consumer confidence reading rose by 8.7% – the biggest weekly gain in the 7-year history of the survey. Whether the initial positivity is sustained will depend on the future performance and direction of the new administration. But increased confidence is certainly a positive for the Australian economy – hopefully translating into increased spending, investment and employment. 

On Wednesday the Australian Bureau of Statistics releases data on building approvals, while the Reserve Bank releases the Financial Aggregates publication – a report that includes private sector credit, or loans outstanding, together with money supply indicators. 

The building approvals data serves as a leading indicator for home and commercial building. The problem is that the data is ‘lumpy’ with approvals down 5.2% over April, up 2% in May, down 5.2% in June, and again up 4.2% in July 

Housing continues to be the main lending driver but the gains in business borrowings over the past couple of months have also been encouraging. Business conditions are healthy and it seems to be translating to a lift in business borrowings, with annual growth at 4.8%. Credit probably lifted 0.5% in August or around 6.2% over the year – which would mark the strongest growth in six and a half years.

On Thursday the Performance of Manufacturing index is issued alongside the CoreLogic RP Data Home Value index for September. The falling Australian dollar should help boost manufacturing activity in coming months (at least for domestic fabrication rather than for the export market). But the home price data is likely to garner the most interest. Based on daily observations, home prices probably rose by a sedate 0.3-0.4% in September. Sydney property prices may have actually dipped by around 0.3% - a much needed reprieve after the 7.2% gain in the prior three months.

Also on Thursday, the ABS releases data on job vacancies. If vacancies rose in the past three months, it will be a further sign that the job market is gradually strengthening.

On Friday, retail trade data is released. Sales figures have been more mixed in recent months, having fallen by 0.1% in July after a 0.6% increase in June. Annual spending growth is holding at 4.2% – slightly below the decade average of 4.4%. Disappointingly, last month non-food spending fell by 0.1%, the first fall in seven months. The hope would be that the more upbeat confidence readings, warm weather and early mid-season sales should have encouraged some early lift in Spring-related spending. 

Overseas: US jobs data back in the spotlight 

In the US, the week kicks off with the release of personal income and spending figures together with the pending home sales index and Dallas Federal Reserve business index on Monday. Economists tip a 0.3% lift in spending, funded by a 0.4% lift in income. Pending home sales are expected to lift by 0.4% following the 0.5% lift in July. 

On Tuesday, the Case Shiller home price index is released in the US, together with consumer confidence. Home prices were likely flat in July while consumer confidence is tipped to have eased from 101.5 to 97.0.

On Wednesday the ADP national employment index is released, together with the Chicago purchasing managers’ survey and the weekly report on mortgage transactions – purchases and refinancing. Economists tip an 185,000 lift in private jobs – a precursor to Friday’s official job report.

On Thursday the ISM manufacturing survey is issued alongside auto sales, construction spending and the weekly data on claims for unemployment insurance.

On Friday in the US the spotlight shines brightly on the September job report. Economists tip a 200,000 lift in jobs, up from 173,000 in August, while the jobless rate is seen unchanged at 5.1%. This is a potential market-mover in every way. A strong jobs report would raise the prospect of US rate hikes, boost the US dollar further, and, in turn, put downward pressure on commodity prices. 

Also on Friday factory orders for August are released alongside the regional New York ISM survey.

In China, the official purchasing managers’ index for manufacturing is released on Thursday, alongside the
services variant. The Caixin purchasing managers’ index is also slated for release on the same day. 

Sharemarkets, interest rates, commodities and currencies

Each month, there is much speculation about the cash rate, and therefore the implication for variable interest rates. But this ignores the fact that many businesses are more focussed on the swap market and thus longer-term fixed rate loans. And the yield curve shows that rates are arguably the lowest businesses have ever seen. 

Longer-term bond yields are a useful guide on economic conditions, especially inflation. Clearly a main concern for an investor looking to squirrel money away for a long period is the potential for value to be eroded by inflation. 

On February 3, 10-year bond yields hit a generational low of 2.27%, before lifting to highs near 3.15% on June 11 and yields are now around 2.66%. Similarly, 3-year bond yields are holding at 1.90%, not far off their recent lows of %1.73 on August 24. But whichever way you cut it, financial markets believe low inflation is here to stay. 

For the record, financial market pricing suggests that there is a 22% chance that the Reserve Bank will cut rates in October.